Ernst & Young & Co KPMG Al Fozan & Partners

Represents - from Q3

Represents - from Illustrative

Ernst & Young & Co KPMG Al Fozan & Partners

THE NATIONAL COMMERCIAL BANK(A Saudi Joint Stock Company)

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2020

AUDITORS' REPORT

AND

Note

No.

Page

No.

AUDITORS' REPORT

Consolidated statement of financial position 3

Consolidated statement of income 4

Consolidated statement of comprehensive income 5

Consolidated statement of changes in equity 6

Consolidated statement of cash flows 7

Notes to the Consolidated Financial Statements:

1 General 8

2 Basis of preparation 10

3 Summary of significant accounting policies 13

4 Cash and balances with SAMA 36

5 Due from banks and other financial institutions 36

6 Investments, net 37

7 Financing and advances, net 41

8 Investment in associates, net 50

9 Property, equipment and software, net 51

10 Right of use Assets, net 52

11 Other assets 53

12 Derivatives 54

13 Due to banks and other financial institutions 58

14 Customers' deposits 58

15 Debt securities issued 59

16 Other liabilities 60

17 Share capital 60

18 Statutory reserve 61

19 Other reserves (cumulative changes in fair values) 61

20 Commitments and contingencies 61

21 Net special commission income 62

22 Fee income from banking services, net 63

23 Income from fair value through income statement investments, net 63

24 Gains/Income on non-FVIS financial instruments, net 63

25 Share based payment reserve 64

26 Employee benefit obligation 64

27 Basic and diluted earnings per share 65

28 Tier 1 Sukuk 65

29 Dividend 65

30 Cash and cash equivalents 66

31 Operating segments 66

32 Collateral and offsetting 68

33 Credit risk 69

34 Market risk 78

35 Liquidity risk 85

36 Geographical concentration of assets, liabilities, commitments and contingencies and credit exposure 89

37 Determination of fair value and fair value hierarchy 92

38 Related party transactions 94

39 Group's staff compensation 95

40 Capital adequacy 96

41 Group's interest in other entities 97

42 Comparative figures 98

43 Impact of COVID-19 on expected credit losses (“ECL”) and SAMA programs 99

44 Investment services 101

45 Prospective changes in accounting policies 101

46 Board of directors' approval 102

CONTENTS OF THE CONSOLIDATED FINANCIAL STATEMENTS

The National Commercial Bank

(A Saudi Joint Stock Company)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFor the years ended 31 December 2020 and 2019

1. GENERAL

(1.1)

(1.2)

Name of subsidiary 2020 2019

100% 99.94%

The Bank operates through its 431 branches (2019: 434 branches), 11 retail service centers (2019: 12 centers), 4 corporate

service centers (2019: 8 centers) and 127 QuickPay remittance centers (2019: 138 centers) in the Kingdom of Saudi

Arabia and two overseas branches in the Kingdom of Bahrain and the Republic of Singapore.

The Board of Directors in their meeting dated 23 November 2015 resolved to close the Bank's branch operations

domiciled in Beirut, Lebanon. The required regulatory approvals have been received and the legal formalities in respect of

the closure of the branch are in progress.

Introduction

The financial statements comprise of the consolidated financial statements of The National Commercial Bank (the Bank)

and its subsidiaries (the Group).

The National Commercial Bank is a Saudi Joint Stock Company formed pursuant to Cabinet Resolution No. 186 on 22

Dhul Qida 1417H (30 March 1997) and Royal Decree No. M/19 on 23 Dhul Qida 1417H (31 March 1997), approving the

Bank’s conversion from a General Partnership to a Saudi Joint Stock Company.

The Bank commenced business as a partnership under registration certificate authenticated by a Royal Decree on 28 Rajab

1369H (15 May 1950) and registered under commercial registration number 4030001588 dated on 19 Safar 1418H (26

June 1997). The Bank initiated business in the name of “The National Commercial Bank” under Royal Decree No. 3737

on 20 Rabi Thani 1373H (26 December 1953). The date of 1 July 1997 was determined to be the effective date of the

Bank’s conversion from a General Partnership to a Saudi Joint Stock Company. The Bank’s shares have been trading on

Saudi Stock Exchange (Tadawul) since 12 November 2014.

The Bank announced on 25 June 2020 that it entered into a framework agreement with Samba Financial Group

(“SAMBA”), a bank listed in the Kingdom of Saudi Arabia stock market (Tadawul), in order to begin a reciprocal due

diligence process and to negotiate definitive and binding terms of a potential merger of the two banks.

Ownership %

Description

NCB Capital Company

(NCBC)

A Saudi Joint Stock Company registered in the Kingdom

of Saudi Arabia to manage the Bank's investment services

and asset management activities.

The Bank's Head Office is located at the following address:


Head Office

King Abdul Aziz Street

P.O. Box 3555, Jeddah 21481,

Kingdom of Saudi Arabia

www.alahli.com

The objective of the Group is to provide a full range of banking and investment management services. The Group also

provides non-special commission based banking products in compliance with Shariah rules, which are approved and

supervised by an independent Shariah Board.

Group's subsidiaries

The details of the Group's significant subsidiaries are as follows:

Subsequently, on 11 October 2020, the Bank announced that it has entered into a legally binding merger agreement

pursuant to which NCB and SAMBA have agreed to take necessary steps to implement merger between the two Banks in

accordance with Article 191-193 of the Companies Law and Article 49(a)(1) of the Merger and Acquisition Regulation.

Pursuant to the terms of the merger agreement, all of the assets and liabilities of SAMBA will be transferred to NCB and

accordingly, on completion of the merger, the Bank will continue to exist and SAMBA will cease to exist as a legal entity

and its shares will be cancelled and new shares in NCB will be issued to the shareholders of SAMBA based on the agreed

exchange ratio. The merger is conditional upon shareholders of both banks and respective regulatory approvals.

_____________________________________________________________________________________________________

8


(A Saudi Joint Stock Company)0

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For the years ended 31 December 2020 and 2019

1. GENERAL (continued)

(1.2)

Name of subsidiaries 2020 2019

100% 99.94%

100% 99.94%

67.03% 67.03%

100% 100%

100% 100%

100% 100%

100% 100%

100% 100%

NCB Capital Real Estate

Investment Company (REIC)

The Company is a special purpose entity registered

in the Kingdom of Saudi Arabia. The primary

objective of REIC is to hold and register the real

estate assets on behalf of real estate funds managed

by NCB Capital Company.

A participation bank registered in Turkey that

collects funds through current accounts and profit

sharing accounts and lends funds to consumer and

corporate customers, through finance leases and

profit/loss sharing partnerships.

As at the end of the year, TFKB fully owns the

issued share capital of TF Varlık Kiralama AŞ,

(TFVK) and TFKB Varlik Kiralama A.Ş., which

are special purpose entities (SPEs) established in

connection with issuance of Sukuks by TFKB.

Real Estate Development

Company (REDCO)

A Limited Liability Company registered in the

Kingdom of Saudi Arabia. REDCO is engaged in

keeping and managing title deeds and collateralised

real estate properties on behalf of the Bank.

Türkiye Finans Katılım Bankası

A.Ş. (TFKB)

AlAhli Insurance Service

Marketing Company

A Limited Liability Company, engaged as an

insurance agent for distribution and marketing of

Islamic insurance products in The Kingdom of

Saudi Arabia.

On 7 July 2020, Saudi Central Bank "SAMA"

issued rules governing banc assurance activities

decision whereby banc assurance activities i.e.

distribution and marketing of Islamic products shall

be practiced directly through the Bank. Therefore,

the company resolved to liquidate the operations

with immediate effect. The regulatory procedures to

liquidate the company are in process.

Eastgate MENA Direct Equity

L.P.

A private equity fund domiciled in the Cayman

Islands and managed by NCB Capital Dubai Inc.

The Fund’s investment objective is to generate

returns via investments in Shariah compliant direct

private equity opportunities in high growth

businesses in countries within the Middle East and

North Africa (MENA).

AlAhli Outsourcing Company A Limited Liability Company registered in the

Kingdom of Saudi Arabia, engaged in recruitment

services within the Kingdom of Saudi Arabia.

Saudi NCB Markets Limited A Limited Liability Company registered in the

Cayman Islands, engaged in trading in derivatives

and Repos/Reverse Repos on behalf of the Bank.

Group's subsidiary (continued)

Ownership %

Description

NCB Capital Dubai Inc.

(formerly Eastgate Capital

Holdings Inc.)

An exempt company with limited liability

incorporated in the Cayman Islands to source,

structure and invest in private equity and real estate

development opportunities across emerging markets.

_____________________________________________________________________________________________________

9





2. BASIS OF PREPARATION

(2.1) Statement of compliance

The consolidated financial statements of the Group have been prepared;

(2.2)

(2.3)

(2.4)

Basis of measurement

The consolidated financial statements are prepared and presented under the historical cost convention except for the

measurement at fair value of financial assets held at fair value [derivatives, financial assets held at fair value through

income statement (FVIS), Fair value through other comprehensive income (FVOCI) - debt instruments and equity

instruments and defined benefit obligation]. In addition, financial assets or liabilities that are carried at amortized cost

but are hedged in a fair value hedging relationship are carried at fair value to the extent of the risk being hedged. The

statement of financial position is broadly in order of liquidity.

Functional and presentation currency

These consolidated financial statements are presented in Saudi Arabian Riyals (SAR) which is also the Bank's

functional currency and have been rounded off to the nearest thousand Saudi Arabian Riyals, except as otherwise

indicated.

- In accordance with ‘International Financial Reporting Standards (IFRS) that are endorsed in the Kingdom of Saudi

Arabia and other standards and pronouncements issued by the Saudi Organization for Certified Public Accountants

(SOCPA); as collectively referred to IFRSs that are endorsed in KSA.

'- In compliance with the provisions of Banking Control Law, the Regulations for Companies in the Kingdom of Saudi

Arabia and by-laws of the Bank.

Basis of consolidation

The consolidated financial statements comprise the financial statements of "The National Commercial Bank" and its

subsidiaries (see note 1.2). The financial statements of the subsidiaries are prepared for the same reporting year as that

of the Bank, using consistent accounting policies.

All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members

of the group are eliminated in full on consolidation.

_____________________________________________________________________________________________________

10





2.

(2.5)

Financial instruments for which fair value is measured or disclosed in the consolidated financial statements are

categorized within the fair value hierarchy (see note 37).

Significant areas where the management has used estimates, assumptions or exercised judgements are as follows:

• In the principal market for the asset or liability; or

The preparation of consolidated financial statements in conformity with the IFRS as endorsed in the KSA requires the

use of certain critical accounting judgements, estimates and assumptions that affect the reported amounts of assets,

liabilities, revenues and expenses. It also requires management to exercise its judgment in the process of applying the

Group's accounting policies. Such judgments, estimates and assumptions are continually evaluated and are based on

historical experience and other factors, including obtaining professional advice and expectations of future events that

are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Revisions to

accounting estimates are recognised in the period in which the estimate is revised and any future period affected.

BASIS OF PREPARATION (continued)

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction

between market participants at the measurement date. The fair value measurement is based on the presumption that the

transaction to sell the asset or transfer the liability takes place either:

For assets and liabilities that are recognised in the consolidated financial statements on a recurring basis, the Group

determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the

lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

The fair value of an asset or a liability is measured using assumptions that market participants would use when pricing

the asset or liability, assuming that market participants act in their best economic interest.

(a) Fair value of financial instruments that are not quoted in an active market

• In the absence of a principal market, in the most advantageous market for the asset or liability.

A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic

benefits by using the asset in its highest and best use or by selling it to another market participant that would use the

asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are

available to measure fair value, maximising the use of relevant observable inputs and minimising the use of

unobservable inputs.

In preparing these consolidated financial statements, the critical accounting judgments, estimates and assumptions

made by management are primarily consistent with those applied to the annual consolidated financial statements for the

year ended 31 December 2019, except for judgments and assumptions used in the application of accounting policies as

disclosed in note 3.3 and note 43.

Critical accounting judgements, estimates and assumptions

The group has exercised judgement in the assessment/determination of the impact of covid 19 on ECL as well as

analysis of the financial reporting impacts of SAMA support programmes.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of their

nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy.

_____________________________________________________________________________________________________

11





2.

(2.5)


Critical accounting judgments and estimates and assumptions (continued)

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit (CGU) exceeds its

recoverable amount. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and

its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present

value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks

specific to the CGUs. The fair value less cost to sell is based on observable market prices or, if no observable market

prices exist, estimated prices for similar assets or if no estimated prices for similar assets are available, then based on

discounted future cash flow calculations.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date,

allocated to each of the Group's cash-generating units, or groups of cash-generating units, that are expected to benefit

from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to

those units or groups of units.

The subsidiaries are regarded as a cash-generating unit for the purpose of impairment testing of their respective

goodwill. Impairment losses are recognised in the consolidated statement of income. Impairment losses recognised in

respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units

and then to reduce the carrying amount of other assets including the intangible assets in the unit (group of units) on a

pro rata basis on condition that the carrying amount of other assets should not be reduced below their fair values.

Where goodwill forms part of a cash-generating unit (or group of cash-generating units) and part of the operation

within that unit is disposed off, the goodwill associated with the operation disposed off is included in the carrying

amount of the operation when determining the gain or loss on disposal off the operation. Goodwill disposed off in this

circumstance is measured based on the relative values of the operation disposed off and the portion of the cash-

generating unit retained.

When subsidiaries are sold, the difference between the selling price and the net assets plus any cumulative foreign

currency translation reserve and unimpaired goodwill is recognised in the consolidated statement of income.

(b) Going concern

The Group’s management has made an assessment of the Group’s ability to continue as a going concern and is

satisfied that the Group has the resources to continue in business for the foreseeable future. Furthermore, the

management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to

continue as a going concern. Therefore, the consolidated financial statements continue to be prepared on the going

concern basis.

(c) Impairment of non-financial assets

The carrying amounts of the non-financial assets are reviewed at each reporting date or more frequently to determine

whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is

estimated.

The previously recognised impairment loss in respect of goodwill cannot be reversed through the consolidated

statement of income.

Non-financial assets held under Murabaha arrangements are measured at their lower of cost and net realizable value.

Net realizable value is the estimated selling price, less selling expenses. Any impairment loss arising as a result of

carrying these assets at their net realizable values is recognised in the consolidated statement of income under other

operating (expense), net.

In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any

indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in

the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the

asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or

amortisation, if no impairment loss had been recognised.

_____________________________________________________________________________________________________

12





2.

(2.5)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(3.1)

(3.2)

The significant accounting policies adopted in the preparation of these consolidated financial statements, and changes

therein, are set out below:

The Group acts as a Fund Manager to a number of investment funds. Determining whether the Group controls such an

investment fund usually focuses on the assessment of the aggregate economic interests of the Group in the Fund

(comprising any carried interests and expected management fees) and the investors rights to remove the Fund Manager.

Critical accounting judgments and estimates and assumptions (continued)

(g) Useful lives of property, equipment and other software, and right of use assets

The Group maintains an end of service benefit plan for its employees and to arrive at the estimated obligation as at the

reporting date, the Group uses assumptions such as the discount rate, expected rate of salary increase and normal

retirement age.

(f) Measurement of defined benefits obligation

The Group receives legal claims in the ordinary course of business. Management makes judgments in assigning the risk

that might exists in such claims. It also sets appropriate provisions against probable losses. The claims are recorded or

disclosed, as appropriate, in the consolidated financial statements based on the best estimates of the amounts required

to settle these claims.

Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss

that it incurs because a specified debtor fails to make payment when it is due in accordance with the terms of a debt

instrument.

Financial guarantees issued or commitments to provide a loan at a below-market interest rate are initially measured at

fair value and the initial fair value is amortised over the life of the guarantee or the commitment. Subsequently, they

are measured at the higher of this amortised amount or the amount of loss allowance.

The Group has issued no loan commitments that are measured at FVIS. For other loan commitments, the Group

recognises loss allowance.

Financial guarantees and loan commitments

Changes in accounting policies

The accounting policies used in the preparation of these consolidated financial statements are consistent with those

used in the preparation of the annual consolidated financial statements for the year ended 31 December 2019 except

for the amendments as disclosed in note 3.3.

Loan commitments are Bank commitments to provide credit under pre-specified terms and conditions.

(e) Provisions for liabilities and charges

The Group exercises judgement for the classification of financial instruments (refer note 3.4).

(i) Classification of financial instruments

The Group exercises judgement and applies the use of various assumptions in the determination of expected credit

losses (refer note 3.26).

(h) Impairment charge for expected credit losses

The management determines the estimated useful lives of its property, equipment and other software for calculating

depreciation/amortisation. This estimate is determined after considering the expected usage of the asset or its physical

wear and tear. The residual value, useful lives and future depreciation/amortisation charges are revised by the

management where they believe the useful lives differ from previous estimates.


(d) Determination of control over investment funds

_____________________________________________________________________________________________________

13





3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

(3.3)

Amendments to IAS 1 and IAS 8: Definition of Material

A fundamental review and reform of major interest rate benchmarks is being undertaken globally. The International

Accounting Standards Board (“IASB”) was engaged in a two-phase process of amending its guidance to assist in a

smoother transition away from Inter Bank Offered Rates (IBOR).

Phase (1) - The first phase of amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments:

Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures focused on hedge accounting issues.

The final amendments, issued in September 2019, amended specific hedge accounting requirements to provide relief

from the potential effects of the uncertainty caused by IBOR reform. The amendments are effective from 1 January

2020 and are mandatory for all hedge relationships directly affected by IBOR reform. The bank has adopted these

amendments along with the hedging relief for pre-replacement hedges.

Amendments to IFRS 7, IFRS 9 and IAS 39: Interest Rate Benchmark Reform

The amendments provide a new definition of material that states, “information is material if omitting, misstating or

obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial

statements make on the basis of those financial statements, which provide financial information about a specific

reporting entity.” The amendments clarify that materiality will depend on the nature or magnitude of information,

either individually or in combination with other information, in the context of the financial statements. A

misstatement of information is material if it could reasonably be expected to influence decisions made by the primary

users. These amendments had no impact on the consolidated financial statements of, nor is there expected to be any

significant future impact to the Group.

Amendments to References to the Conceptual Framework in IFRS Standards

The Conceptual Framework is not a standard, and none of the concepts contained therein override the concepts or

requirements in any standard. The purpose of the Conceptual Framework is to assist the IASB in developing

standards, to help preparers develop consistent accounting policies where there is no applicable standard in place and

to assist all parties to understand and interpret the standards. This will affect those entities which developed their

accounting policies based on the Conceptual Framework. The revised Conceptual Framework includes some new

concepts, updated definitions and recognition criteria for assets and liabilities and clarifies some important concepts.

These amendments had no impact on the consolidated financial statements of the Group.

New standards, interpretations and amendments promulgated by International Accounting Standard Board

(IASB) and adopted by the Group:

Below amendments to accounting standards and interpretations became applicable for annual reporting periods

commencing on or after 1 January 2020. The management has assessed that the amendments have no significant

impact on the Group’s consolidated financial statements.

Amendments to IFRS 3: Definition of a Business

The amendment to IFRS 3 Business Combinations clarifies that to be considered a business, an integrated set of

activities and assets must include, at a minimum, an input and a substantive process that, together, significantly

contribute to the ability to create output. Furthermore, it clarifies that a business can exist without including all of the

inputs and processes needed to create outputs. These amendments had no impact on the consolidated financial

statements of the Group, but may impact future periods should the Group enter into any business combinations.

______________________________________________________________________________________________14






(3.3)

Phase (2) - The second phase relates to the replacement of benchmark rates (IBOR) with alternative risk-free rates

(RFR) which were issued in August 2020. The Phase 2 amendments are effective for annual periods beginning on or

after 1 January 2021 and early application is permitted. The Bank has already completed its assessment of the

accounting implications of the scenarios it expects to encounter as the transition from IBORs to RFRs in order to

accelerate its programmes to implement the new requirements. The Phase 2 Amendments introduce new areas of

judgement and the Bank needs to ensure it has appropriate accounting policies and governance in place before the

transition. For the additional disclosures, the Bank will have to assess and implement required updates in the financial

reporting systems and processes to gather and present the information required.

New standards, interpretations and amendments promulgated by International Accounting Standard Board

(IASB) and adopted by the Group: (continued)

Amendments to IFRS 7, IFRS 9 and IAS 39: Interest Rate Benchmark Reform (continued)

Adoption of IFRS 16

In 2019, the Bank carried out a reassessment of the timing of the recognition of fee received in connection with its

financing and advances, analyzing whether any upfront fee is an integral component of the effective special rate of the

corresponding financial asset via consideration of factors such as provision of distinct service or product, presence of

a separate performance obligation and related contract costs. As a result, the Bank identified certain fees to be

adjusted in the amortised cost of the related financing and advances. The impact of such adjustment in prior periods

was determined to be insignificant in relation to the financial statements as a whole and therefore adjusted from the

carrying value of financing and advances with a corresponding debit to retained earnings as at 1 January 2019,

amounting to SAR 1,177 million. In furtherance thereof, during the financial year 2020, management has identified

certain fees having similar nature as the foregoing, and accordingly, the previously reported balances of financing and

advances as at 1 January 2019 and 31 December 2019 (SAR 282,289 million and SAR 281,843 million respectively)

and of retained earnings (SAR 6,622 million and SAR 6,176 million respectively) have been adjusted by SAR 445

million. No adjustment has been made to the comparative statement of income, as the effect was not identified to be

significant.

Upon adoption of IFRS 16 on 1 January 2019, the Group applied a single recognition and measurement approach for

all leases in which it is the lessee, except for short-term leases and leases of low-value assets. The Group recognised

lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets

under lease arrangements. In accordance with the modified retrospective method of adoption, the Group applied

IFRS 16 at the date of initial application with transition impact of SAR 272 million recognized in retained earnings.

As of 1 January 2019, the right of use assets and lease liabilities amounting to SAR 1,797 million and SAR 1,939

million, respectively were recognised.

Assessment of the fee income recognition on financing and advances

______________________________________________________________________________________________15






(3.4)

Financial asset at amortised cost

Classification of financial assets

On initial recognition, a financial asset is classified as held at amortised cost, fair value through other comprehensive

income ("FVOCI") or fair value through income statement ("FVIS").

A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at

FVIS:

• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of

principal and interest on the principal amount outstanding.

• The asset is held within a business model whose objective is to hold assets to collect contractual cash flows (HTC);

and

Debt instruments

Financial asset at FVOCI

A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as

FVIS:

• The asset is held within a business model whose objective is achieved by both collecting contractual cash flows and

selling financial assets (HTCS); and

• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of

principal and interest on the principal amount outstanding.

FVOCI debt instruments are subsequently measured at fair value with gains and losses arising due to changes in fair

value recognised in OCI. Special commission income and foreign exchange gains and losses are recognised in the

consolidated statement of income

On initial recognition, for an equity investment that is not held for trading, the Group may irrevocably elect to present

subsequent changes in fair value in the statement of other comprehensive income. This election is made on an

investment-by-investment basis.

All financial assets, not classified as held at amortised cost or FVOCI are classified as FVIS.

In addition, on initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the

requirements to be measured at amortised cost or at FVOCI as at FVIS if doing so eliminates or significantly reduces

an accounting mismatch that would otherwise arise.

Equity instruments

Financial asset at FVIS

Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group

changes its business model for managing financial assets.

_____________________________________________________________________________________________________

16






(3.5)

(3.6)

• The stated policies and objectives for the portfolio and the operation of those policies in practice. In particular,

whether management's strategy focuses on earning contractual interest revenue, maintaining a particular interest

rate profile, matching the duration of the financial assets to the duration of the liabilities that are funding those

assets or realizing cash flows through the sale of the assets;

• How the performance of the portfolio is evaluated and reported to the Group's management;

• The risks that affect the performance of the business model (and the financial assets held within that business

model) and how those risks are managed;

The Group makes an assessment of the objective of a business model under which an asset is held, at a portfolio level

because this best reflects the way the business is managed and information is provided to management. The

information considered includes:

• How managers of the business are compensated- e.g. whether compensation is based on the fair value of the

assets managed or the contractual cash flows collected; and• The frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations

about future sales activity. However, information about sales activity is not considered in isolation, but as part

of an overall assessment of how the Group's stated objective for managing the financial assets is achieved and

how cash flows are realized.

The business model assessment is based on reasonably expected scenarios without taking 'worst case' or 'stress case’

scenarios into account. If cash flows after initial recognition are realised in a way that is different from the Group's

original expectations, the Group does not change the classification of the remaining financial assets held in that

business model, but incorporates such information when assessing newly originated or newly purchased financial

assets going forward.

For the purposes of this assessment, 'principal' is the fair value of the financial asset on initial recognition. 'Interest' is

the consideration for the time value of money, the credit and other basic lending risks associated with the principal

amount outstanding during a particular period and other basic lending costs (e.g. liquidity risk and administrative

costs), along with profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the

contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term

that could change the timing or amount of contractual cash flows such that it would not meet this condition. In

making the assessment, the Group considers:

• contingent events that would change the amount and timing of cash flows;

Financial assets that are held for trading and whose performance is evaluated on a fair value basis are measured at

FVIS because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows

and to sell financial assets.

• terms that limit the Group's claim to cash flows from specified assets (e.g. non-recourse asset arrangements);

and

• features that modify consideration of the time value of money- e.g. periodical reset of interest rates.

Assessments whether contractual cash flows are solely payments of principal and interest ("SPPI" criteria)

• prepayment and extension terms;

• leverage features;

Business model assessment

_____________________________________________________________________________________________________

17






(3.7)

(3.8)

(3.9) Derivative financial instruments and hedge accounting

Derivative financial instruments including foreign exchange contracts, special commission rate futures, forward rate

agreements, currency and special commission rate swaps, swaptions, currency and special commission rate options

(both written and purchased) are measured at fair value. Fair values are obtained by reference to quoted market prices

and/or valuation models as appropriate.

Any changes in the fair value of derivatives that are held for trading purposes are taken directly to the consolidated

statement of income for the year and are disclosed in trading income. Derivatives held for trading also include those

derivatives, which do not qualify for hedge accounting as described below.

Settlement date accounting

All regular way purchases and sales of financial assets are recognised and derecognised on the settlement date, i.e. the

date on which the asset is delivered to the counterparty. When settlement date accounting is applied, the Group

accounts for any change in fair value between the trade date and the settlement date in the same way as it accounts for

the acquired asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of

assets within the time frame generally established by regulation or convention in the market place.

In order to qualify for hedge accounting, the hedge should be expected to be "highly effective", i.e. the changes in fair

value or cash flows of the hedging instrument should effectively offset corresponding changes in the hedged item,

and should be reliably measurable. At inception of the hedge, the risk management objective and strategy is

documented including the identification of the hedging instrument, the related hedged item, the nature of risk being

hedged, and how the Group will assess the effectiveness of the hedging relationship. Subsequently, the hedge is

required to be assessed and determined to be an effective hedge on an ongoing basis.

For the purpose of hedge accounting, hedges are classified into two categories:

Amortised cost is calculated by taking into account any discount or premium on issued funds, and costs that are an

integral part of the effective special commission rate.

(b) Cash flow hedges which hedge exposure to variability in cash flows that is either attributable to a particular risk

associated with a recognised asset or liability or to a highly probable forecasted transaction that will affect the

reported net gain or loss.

The Group designates certain derivatives as hedging instruments in qualifying hedging relationships to manage

exposures to interest rate, foreign currency and credit risks, including exposures arising from highly probable forecast

transactions and firm commitments. In order to manage particular risk, the Group applies hedge accounting for

transactions that meet specific criteria. As permitted by IFRS 9, the Group has elected to continue to apply the hedge

accounting requirements of IAS 39.

(3.9.1) Derivatives held for trading

(3.9.2) Hedge accounting

(a) Fair value hedges which hedge the exposure to changes in the fair value of a recognised asset or liability, or an

unrecognised firm commitment or an identified portion of such an asset, liability or firm commitment, that is

attributable to a particular risk and could affect the reported net gain or loss; and

Classification of financial liabilities

The Group classifies its financial liabilities, other than financial guarantees and loan commitments, as measured at

amortised cost.

All money market deposits, customers' deposits, term financing and other debt securities in issue are initially

recognised at fair value less transaction costs.

Subsequently, financial liabilities are measured at amortised cost, unless they are required to be measured at fair value

through income statement or the Group has opted to measure a liability at fair value through statement of income.

_____________________________________________________________________________________________________

18






(3.9)

(3.9.3) Fair value hedges

(3.9.4) Cash flow hedges

Derivative financial instruments and hedge accounting (continued)

(3.9.2) Hedge accounting (continued)

At each hedge effectiveness assessment date, a hedge relationship must be expected to be highly effective on a

prospective basis and demonstrate that it was effective (retrospective effectiveness) for the designated period in order

to qualify for hedge accounting. A formal assessment is undertaken by comparing the hedging instrument’s

effectiveness in offsetting the changes in fair value or cash flows attributable to the hedged risk in the hedged item,

both at inception and at each quarter end on an ongoing basis.

A hedge is expected to be highly effective if the changes in fair value or cash flows attributable to the hedged risk

during the period for which the hedge is designated were offset by the hedging instrument and were expected to

achieve such offset in future periods. Hedge ineffectiveness is recognised in the consolidated statement of income in

‘income from FVIS instruments, net’. For situations where the hedged item is a forecast transaction, the Group also

assesses whether the transaction is highly probable and presents an exposure to variations in cash flows that could

ultimately affect the consolidated statement of income.

For hedged items measured at amortised cost, where the fair value hedge of a commission bearing financial

instrument ceases to meet the criteria for hedge accounting or is sold, exercised or terminated, the difference between

the carrying value of the hedged item on termination and the face value is amortised over the remaining term of the

original hedge using the effective commission rate method. If the hedged item is derecognised, the unamortised fair

value adjustment is recognised immediately in the consolidated statement of income.

In relation to cash flow hedges which meet the criteria for hedge accounting, the portion of the gain or loss on the

hedging instrument that is determined to be an effective hedge is recognised initially in other reserves under equity

and the ineffective portion, if any, is recognised in the consolidated statement of income. For cash flow hedges

affecting future transactions, the gains or losses recognised in other reserves, are transferred to the consolidated

statement of income in the same period in which the hedged transaction affects the consolidated statement of income.

However, if the Group expects that all or a portion of a loss recognised in consolidated statement of other

comprehensive income will not be recovered in one or more future periods, it shall reclassify into the consolidated

statement of income as a reclassification adjustment the amount that is not to be recognised.

Hedge accounting is discontinued when the hedging instrument is expired or sold, terminated or exercised, or no

longer qualifies for hedge accounting, or the forecast transaction is no longer expected to occur or the Group revokes

the designation then hedge accounting is discontinued prospectively. At that point of time, any cumulative gain or

loss on the cash flow hedging instrument that was recognised in other reserves from the period when the hedge was

effective is transferred from equity to the consolidated statement of income when the forecasted transaction occurs.

Where the hedged forecasted transaction is no longer expected to occur and affect the consolidated statement of

income, the net cumulative gain or loss recognised in other reserves is transferred immediately to the consolidated

statement of income.

In relation to fair value hedges, which meet the criteria for hedge accounting, any gain or loss from remeasuring the

hedging instruments to fair value is recognised immediately in the consolidated statement of income. Any gain or

loss on the hedged item attributable to fair value changes relating to the risks being hedged is adjusted against the

carrying amount of the hedged item and recognised in the consolidated statement of income (in the same line item as

the hedging instrument). Where the fair value hedge of a special commission bearing financial instrument ceases to

meet the criteria for hedge accounting, the adjustment in the carrying value is amortised to the consolidated statement

of income over the remaining life of the instrument.

_____________________________________________________________________________________________________

19






(3.9)

(3.10)

• The terms of the embedded derivative would meet the definition of a derivative if they were contained in a

separate contract; and

The Group derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire,

or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and

rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains

substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

Financial assets

Derivatives may be embedded in another contractual arrangement (a host contract). The Bank accounts for an

embedded derivative separately from the host contract when:

Separated embedded derivatives are measured at fair values. with all changes in fair value recognized in profit or loss

unless they form part of a qualifying cash flow or net investment hedging relationship.

Derivative financial instruments and hedge accounting (continued)

In transactions in which the Group neither retains nor transfers substantially all of the risks and rewards of ownership

of a financial asset and it retains control over the asset, the Group continues to recognize the asset to the extent of its

continuing involvement, determined by the extent to which it is exposed to changes in the value of the asset.

• The host contract is not an asset in the scope of IFRS 9;

• The economic characteristics and risks of the embedded derivative are not closely related to the economic

characteristics and risks of the host contract.

Derecognition

(3.9.5) Embedded derivatives

When assets are sold to a third party with a concurrent total rate of return swap on the transferred assets, the

transaction is accounted for as a secured financing transaction similar to sale-andrepurchase transactions, as the

Group retains all or substantially all of the risks and rewards of ownership of such assets.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount

allocated to the portion of the asset derecognised) and the sum of (i) the consideration received (including any new

asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in OCI is

recognised in the consolidated statement of income.

Any cumulative gain/loss recognised in OCI in respect of equity investment securities designated as at FVOCI is not

recognised in the consolidated statement of income on derecognition of such securities. Any interest in transferred

financial assets that qualify for derecognition that is created or retained by the Group is recognised as a separate asset

or liability.

_____________________________________________________________________________________________________

20






(3.11)

(3.12)

If the cash flows of the modified asset carried at amortised cost are not substantially different, then the modification

does not result in derecognition of the financial asset. In this case, the Group recalculates the gross carrying amount

of the financial asset and recognizes the amount arising from adjusting the gross carrying amount as a modification

gain or loss in the consolidated statement of income. If such a modification is carried out because of financial

difficulties of the borrower, then the gain or loss is presented together with impairment losses. In other cases, it is

presented together with the account that most closely relates to the underlying reason for the modification.

(a) Financial assets

If the terms of a financial asset are modified, the Group evaluates whether the cash flows of the modified asset are

substantially different. If the cash flows are substantially different, then the contractual rights to cash flows from the

original financial asset are deemed to have expired. In this case, the original financial asset is derecognised and a new

financial asset is recognised at fair value.

Modifications of financial assets and financial liabilities

(a) Transactions and balances of the Bank

As at the reporting date, the assets and liabilities of the foreign operations are translated into the Group's presentation

currency (Saudi Arabian Riyals) at the rate of exchange ruling at the statement of financial position date, equity (pre-

acquisition) is translated at historical exchange rate at the date of acquisition and income and expenses of the

statement of income are translated at the spot exchange rates prevailing at transaction dates on a daily basis. Exchange

differences arising on translation are taken directly to a separate component of equity (foreign currency translation

reserve) and are recognised in consolidated statement of comprehensive income. However, if the operation is a non-

wholly owned subsidiary, then the relevant proportionate share of the foreign exchange translation reserve is allocated

to the non-controlling interest. The deferred cumulative amount of exchange differences recognised in equity will be

reclassified in the consolidated statement of income in ‘Other operating expenses’ or ‘Other operating income’ at the

time of any future disposal or partial disposal with loss of control.

Goodwill and intangible assets arising on the acquisition of the foreign operations and fair value adjustments to the

carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign

operations and translated at the closing rate.

The Group derecognizes a financial liability when its terms are modified and the cash flows of the modified liability

are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair

value. The difference between the carrying amount of the financial liability extinguished and the new financial

liability with modified terms is recognised in the consolidated statement of income.

(b) Foreign operations

Foreign currency differences arising from the translation of equity investments in respect of which an election has

been made to present subsequent changes in fair value in OCI, are recognised in the statement of OCI.

(b) Financial liabilities

Foreign currencies

Each entity in the Group determines its own functional currency and items included in the financial statements of

each entity are measured using that functional currency. The functional currency of NCB, NCBC, NCB Capital Real

Estate Investment Company (REIC), Real Estate Development Company (REDCO), AlAhli Insurance Service

Marketing Company, Saudi NCB Markets Limited and AlAhli Outsourcing Company is Saudi Arabian Riyals. The

functional currency for the TFKB is Turkish Lira and the functional currency of NCB Capital Dubai Inc. and Eastgate

MENA Direct Equity L.P. is U.S. Dollars.

Transactions in foreign currencies are translated into the functional currency at the spot exchange rates prevailing at

transaction dates. Monetary assets and liabilities at the year-end (other than monetary items that form part of the net

investment in a foreign operation), denominated in foreign currencies, are retranslated into the functional currency at

the exchange rates prevailing at the reporting date. Foreign exchange gains or losses on translation of monetary assets

and liabilities denominated in foreign currencies are recognised in the consolidated statement of income. Non-

monetary assets measured at fair value in a foreign currency are translated using the exchange rates prevailing at the

date when the fair value was determined.

_____________________________________________________________________________________________________

21






(3.13)

(3.14) Revenue / expenses recognition

Special commission income and expense are recognised in the consolidated statement of income using the effective

interest method. Fee income received in connection with financing and advances that are integral component of the

effective special commission rate are adjusted from the amortized cost of the related financing and advances and

recognized in the statement of income over the life of the respective financial asset. The 'special commission rate' is

the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial

instrument to or the amortised cost of the financial instrument.

For financial assets that were credit-impaired on initial recognition, special commission income is calculated by

applying the credit-adjusted special commission rate to the amortised cost of the asset. The calculation of special

commission income does not revert to a gross basis, even if the credit risk of the asset improves.

In calculating special commission income and expense, the special commission rate is applied to the gross carrying

amount of the asset (when the asset is not credit-impaired) or to the amortised cost of the liability.

The 'gross carrying amount of a financial asset' is the amortised cost of a financial asset before adjusting for any

expected credit loss allowance.

The 'amortised cost' of a financial asset or financial liability is the amount at which the financial asset or financial

liability is measured on initial recognition minus the principal repayments, plus or minus the cumulative amortization

using the effective interest method of any difference between that initial amount and the maturity amount and, for

financial assets, adjusted for any expected credit loss allowance.

However, for financial assets that have become credit-impaired subsequent to initial recognition, special commission

income is calculated by applying the special commission rate to the amortised cost of the financial asset. If the asset is

no longer credit-impaired, then the calculation of special commission income reverts to the gross basis.

(3.14.1) Special commission income and expenses

The calculation of the special commission rate includes transaction costs and fees paid or received that are an integral

part of the special commission rate. Transaction costs include incremental costs that are directly attributable to the

acquisition or issue of a financial asset or financial liability.

When calculating the special commission rate for financial instruments other than credit-impaired assets, the Group

estimates future cash flows considering all contractual terms of the financial instrument, but not expected credit

losses. For credit-impaired financial assets, a credit-adjusted special commission rate is calculated using estimated

future cash flows including expected credit losses.

Offsetting financial instruments

Financial assets and financial liabilities are offset and reported net in the consolidated statement of financial position

when there is a current legally enforceable right to set off the recognised amounts and when the Group intends to

settle on a net basis, or to realise the asset and settle the liability simultaneously.

Income and expenses are not offset in the consolidated statement of income unless required or permitted by any

accounting standard or interpretation, and as specifically disclosed in the accounting policies of the Group.

_____________________________________________________________________________________________________

22






(3.14)

(3.15)

Success fee is recognized upon satisfaction of the promised performance obligation which generally corresponds to

the execution of a specified task or completion of a milestone as agreed with the respective counterparty.

Other fee expenses mainly relate to transaction and services fee, which are expensed as related services are provided.

(3.14.2) Fee and other income / expenses

Financing commitment fees for financing arrangement that are likely to be drawn down are deferred and recognised

as an adjustment to the effective yield on the financing arrangement. Portfolio and other management advisory and

service fee income are recognised based on the applicable service contracts, usually on a time-proportionate basis.

Fee income received on other services that are provided over an extended period of time, are recognised rateably over

the period when the service is being provided, if material.

Fees income and expenses are recognised on an accrual basis as the service is provided.

Income from FVIS includes all realised and unrealised gains and losses from changes in fair value and related special

commission income or expense, dividends for financial assets held for trading and foreign exchange differences on

open positions.

Exchange income from banking services are recognised when earned.

Revenue / expenses recognition (continued)

Assets sold with a simultaneous commitment to repurchase at a specified future date (repos) continue to be

recognised in the consolidated statement of financial position as the Group retains substantially all the risks and

rewards of ownership. These assets are continued to be measured in accordance with related accounting policies for

investments held as FVTPL, FVOCI, other investments held at amortized cost. The transactions are treated as

collateralised borrowing and counter-party liability for amounts received under these agreements is included in “Due

to banks and other financial institutions” as appropriate. The difference between sale and repurchase price is treated

as special commission expense and accrued over the life of the repo agreement on an effective special commission

rate.

Assets purchased with a corresponding commitment to resell at a specified future date (reverse repo) are not

recognised in the consolidated statement of financial position, as the Group does not obtain control over the assets.

Amounts paid under these agreements are included in "cash and balances with Saudi Central Bank "SAMA", "due

from banks and other financial institutions" or "financing and advances", as appropriate. The difference between

purchase and resale price is treated as special commission income which is accrued over the life of the reverse repo

agreement using the effective yield basis.

Sale and repurchase agreements (including securities lending and borrowings)

Dividend income is recognised when the right to receive dividend income is established.

Fee received in connection with syndication financing where the Group acts as the lead arranger and retains no part of

the financing for itself (or retains a part at the same EIR for comparable risk as other syndicate participants) is

recognized upon the execution of the syndicate financing arrangement. Moreover, commitment fee received by the

Group where it is unlikely that a specific lending arrangement will be entered into by the counterparty is recognized

upon execution of the corresponding facility arrangement.

Securities borrowing and lending transactions are typically secured; collateral takes the form of securities or cash

advanced or received. Securities lent to counterparties are retained on the consolidated statement of financial position.

Securities borrowed are not recognised on the consolidated statement of financial position, unless these are sold to

third parties, in which case the obligation to return them is recorded at fair value as a trading liability. Cash collateral

given or received is treated as a loan and receivable or customers' deposit.

_____________________________________________________________________________________________________

23






(3.16)

Upon loss of control, the Group derecognises the assets and liabilities of the subsidiary, any non-controlling interests

and the other components of equity related to the subsidiary. Any surplus or deficit arising from the loss of control is

recognised in the consolidated statement of income. If the Group retains any interest in the former subsidiary, then

such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-

accounted investment or other categories of investment in accordance with the Group’s relevant accounting policy.

(a) Subsidiaries

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity

transactions, that is, as transactions with the owners in their capacity as owners. The difference between fair value of

any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded

in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

Business combinations are accounted for using the acquisition method of accounting. The cost of an acquisition,

being total consideration of the acquisition, is measured as the fair value of the assets given and liabilities incurred or

assumed at the date of acquisition, plus costs directly attributable to the acquisition that occurred prior to 1 January

2010. For any subsequent acquisitions, the cost of an acquisition is measured as the aggregate of the consideration

transferred measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For

each business combination, the Group elects whether to measure the non-controlling interest in the acquiree at fair

value or at the proportionate share of the acquiree's identifiable net assets. Acquisition related costs are expensed as

incurred and are included in administrative expenses.

Identifiable assets acquired (including previously unrecognised intangible assets) and liabilities (including contingent

liabilities) in an acquisition are measured initially at fair values at the date of acquisition, irrespective of the extent of

any non-controlling interest. Any excess of the cost of acquisition over the fair values of the identifiable net assets

acquired is recognised as goodwill.

Non-controlling interests represent the portion of net income and net assets of subsidiaries not owned, directly or

indirectly, by the Bank in its subsidiaries and are presented separately in the consolidated statement of income and

within equity in the consolidated statement of financial position, separately from the Bank's equity. Any losses

applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing

so causes the non-controlling interests to have a deficit balance.

Subsidiaries are entities which are controlled by the Group. To meet the definition of control, all three criteria must be

i) The Group has power over the entity;

ii) The Group has exposure, or rights, to variable returns from its involvement with the entity; and

iii) The Group has the ability to use its power over the entity to affect the amount of the entity’s returns.

Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated

from the date on which the control is transferred from the Group. The results of subsidiaries acquired or disposed of

during the year, if any, are included in the consolidated statement of income from the date of the acquisition or up to

the date of disposal, as appropriate.

(b) Non-controlling interests

The Group invests in structured entities forming part of larger structure with the objective to resell the investment in a

short period after acquisition. For all such investment, the Group analyses whether and to what extent it controls the

investee and any underlying entities. Moreover, whenever any such investee, controlled by the Group meets the

criteria of held for sale, it is accounted as such and the total assets and total liabilities are included under other assets

and other liabilities.

Business combinations

_____________________________________________________________________________________________________

24






(3.16)

(3.17)

(3.18)

(3.19)

Equity-accounted value represents the cost plus post-acquisition changes in the Group's share of net assets of the

associate (share of the results, reserves and accumulated gains/losses based on latest available financial statements)

less impairment, if any.

The previously recognised impairment loss in respect of investment in associate can be reversed through the

consolidated statement of income, such that the carrying amount of investment in the consolidated statement of

financial position remains at the lower of the equity-accounted (before allowance for impairment) or the recoverable

amount.

(d) Transactions eliminated on consolidation

Inter-group balances, income and expenses (except for foreign currency transaction gains or losses) arising from inter-

group transactions are eliminated, as appropriate, in preparing the consolidated financial statements.

(c) Associates

Due from banks and other financial institutions are financial assets which are mainly money market placements with

fixed or determinable payments and fixed maturities that are not quoted in an active market. Money market

placements are not entered into with the intention of immediate or short-term resale. Due from banks and other

financial institutions are initially measured at cost, being the fair value of the consideration given.

Following initial recognition, due from banks and other financial institutions are stated at amortized cost less any

ECL allowance.

Goodwill

Goodwill acquired in a business combination is initially measured at cost, being the excess of the cost of the business

combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent

liabilities acquired.

Business combinations (continued)

Financing and advances

Associates are enterprises over which the Group exercises significant influence. Investments in associates are initially

recognised at cost and subsequently accounted for under the equity method of accounting and are carried in the

consolidated statement of financial position at the lower of the equity-accounted value or the recoverable amount.

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses; impairment loss

of goodwill is charged to the consolidated statement of income. Goodwill is reviewed for impairment annually or

more frequently if events or changes in circumstances indicate that its carrying value may be impaired.

Financing and advances are non-derivative financial assets originated or acquired by the Group with fixed or

determinable payments.

Financing and advances are recognised when cash is advanced to borrowers. They are derecognised when either the

borrower repays their obligations, or the financing and advances are sold or written off, or substantially all the risks

and rewards of ownership are transferred.

Financing and advances are initially measured at fair value of the consideration given.

Following initial recognition, financing and advances for which fair value has not been hedged are stated at amortised

cost less any amount written off and ECL allowances for impairment.

For presentation purposes, allowance for expected credit losses is deducted from financing and advances.

Due from banks and other financial institutions

_____________________________________________________________________________________________________

25






(3.20)

(3.21)

40 years

Furniture, equipment, vehicles and software 4-10 years

The other real estate assets are disclosed in note 11 while other repossessed assets are included in other assets.

Gain/loss on disposal of repossessed assets are included in other operating income, net.

Property, equipment and software

Subsequent to the initial recognition, such assets are revalued on a periodic basis and adjusted for any subsequent

provision for impairment. Previously recognised unrealised revaluation losses of such assets can be reversed through

the consolidated statement of income on an individual basis upon subsequent increase in fair value. Any unrealised

losses on revaluation (or reversal), realised losses or gains on disposal and net rental income are recognised in the

consolidated statement of income as other operating income (expense), net.

Other real estate and repossessed assets

Over the lease period or useful economic life whichever is shorter

Buildings

Leasehold improvements

The depreciable amount of other property and equipment is depreciated using the straight-line method over the

estimated useful lives of the assets as follows:

Software are recognised only when their cost can be measured reliably and it is probable that the expected future

economic benefits that are attributable to them will flow to the Group. Software are amortised over the useful

economic life and assessed for impairment whenever there is an indication that the software may be impaired. The

amortisation period and the amortisation method for software assets are reviewed at least at the end of each reporting

period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits

embodied in the assets are considered to modify the amortisation period or method, as appropriate, and are treated as

changes in accounting estimates. The amortisation expense on software is recognised in the consolidated statement of

income.

All such assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying

amount may not be recoverable. The carrying amount is written down immediately to its recoverable amount if the

asset’s carrying amount is greater than its estimated recoverable amount.

Subsequent expenditure is capitalised only when it is probable that the future economic benefits of the expenditure

will flow to the Group. Ongoing repairs and maintenance are expensed as incurred.

The Group, in the ordinary course of business, acquires certain real estate and other assets against settlement of due

financing and advances. These are considered as assets held for sale and are initially stated at the lower of net

realizable value of due financing and advances or the current fair value of such related assets, less any costs to sell (if

material). No depreciation is charged on such assets.

Property and equipment are measured at cost less accumulated depreciation and accumulated impairment loss, if any.

Freehold land is not depreciated. Changes in the expected useful lives are accounted for by changing the period or

method, as appropriate, and treated as changes in accounting estimates.

The assets’ residual values, depreciation methods and useful lives are reviewed, and adjusted if appropriate, at the

date of each consolidated statement of financial position.

_____________________________________________________________________________________________________

26






(3.22)

Significant judgement in determining the lease term of contracts with renewal options

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an

option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate

the lease, if it is reasonably certain not to be exercised.

The Group has the option, under some of its leases to lease the assets for additional terms of one to five years. The

Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it

considers all relevant factors that create an economic incentive for it to exercise the renewal. After the

commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances

that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in

business strategy).

Right of use assets

The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is

available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses,

and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease

liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less

any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the

end of the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its

estimated useful life and the lease term. Right-of-use assets are subject to impairment.

Lease liabilities

Leases

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease

payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed

payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and

amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a

purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if

the lease term reflects the Group exercising the option to terminate. The variable lease payments that do not depend

on an index or a rate are recognised as expense in the period on which the event or condition that triggers the payment

occurs.

In calculating the present value of lease payments, the Group uses the internal cost of funds as the incremental

borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.

After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and is

reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a

modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the

assessment to purchase the underlying asset. Lease liabilities are included within other liabilities.

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-term leases (i.e., those leases that have a

lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies

the lease of low-value assets recognition exemption. Lease payments on short-term leases and leases of low-value

assets are recognised as expense on a straight-line basis over the lease term.

_____________________________________________________________________________________________________

27






(3.23)

(3.24)

(3.25)

(3.26)

• Probability of default (PD)

• Loss given default (LGD)

• Exposure at default (EAD)

If the modification of a financial liability is not accounted for as derecognition, then the amortised cost of the liability

is recalculated by discounting the modified cash flows at the original effective interest rate and the resulting gain or

loss is recognised in profit or loss.

No impairment loss is recognised on equity investments.

The Group measures loss allowances at an amount equal to lifetime ECL, except for the following, for which they are

measured as 12-month ECL:

• debt investment securities that are determined to have low credit risk at the reporting date; and

• loan commitments issued.

• other financial instruments on which credit risk has not increased significantly since their initial recognition.

The Group considers a debt security to have low credit risk when their credit risk rating is equivalent to the globally

understood definition of 'investment grade'.

The key inputs into the measurement of ECL are the term structure of the following variables:

Provisions

12-month ECL are the portion of ECL that result from default events on a financial instrument that are possible

within the 12 months after the reporting date.

• lease receivables;

The Group recognizes loss allowances for ECL on the following financial instruments that are not measured at FVIS:

• financial assets that are debt instruments;

Provisions are recognised when a reliable estimate can be made by the Group for a present legal or constructive

obligation as a result of past events where it is more likely that an outflow of resources will be required to settle the

obligation. Provision balance are presented under other liabilities. If the effect of the time value of money is material,

provisions are discounted using a current rate that reflects, where appropriate, the risks specific to the liability. Where

discounting is used, the increase in the provision due to the passage of time is recognised as finance charges.

Financial liabilities

All money market deposits, customers’ deposits and debt securities issued are initially recognised at cost, net of

transaction charges, being the fair value of the consideration received. Subsequently, all commission bearing financial

liabilities, are measured at amortised cost by taking into account any discount or premium. Premiums are amortised

and discounts are accreted on an effective yield basis to maturity and taken to special commission expense.

Financial guarantees and financing commitments

In the ordinary course of business, the Group issues letters of credit, guarantees and acceptances. Financial guarantees

are initially recognised in the consolidated financial statements at fair value on the date the guarantee was given;

typically the premium received. Subsequent to the initial recognition, the Group's liability under such guarantees are

measured at the higher of their amortised amount and the best estimate of the expenditure required to settle any

financial obligation arising at the statement of financial position date. These estimates are determined based on

experience of similar transactions and history of past losses net of any cash margin. Any increase in the liability

relating to the financial guarantee is taken to the consolidated statement of income as impairment charge for financing

and advances losses, net. The premium received is recognised in the consolidated statement of income as fee income

from banking services on a straight line basis over the life of the guarantee, if material.

Financing commitments are commitments to provide credit under pre-specified terms and conditions.

Expected credit loss (ECL)

• financial guarantee contracts issued; and

_____________________________________________________________________________________________________

28






(3.26)

(3.27)

(3.28)

• Financial guarantee contracts: the expected payments to reimburse the holder less cash flows that the Group

expects to receive any.

If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a new one

due to financial difficulties of the borrower, then an assessment is made of whether the financial asset should be

derecognised and ECL is measured as follows:

Measurement of ECL

The forward-looking information will include the elements such as macroeconomic factors (e.g., unemployment,

GDP growth, inflation, profit rates and house prices) and economic forecasts obtained through internal and external

sources.

The Group categorizes its financial assets into following three stages in accordance with the IFRS-9 methodology:

• Financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying

amount and the present value of estimated future cash flows;

• Stage 3 – for Financial assets that are impaired, the Group recognizes the impairment allowance based on life

time ECL.

The Group also considers the forward-looking information in its assessment of significant deterioration in credit risk

since origination as well as the measurement of ECLs.

ECL represent probability-weighted estimates of credit losses. These are measured as follows:

• Financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e.

the difference between the cash flows due to the entity in accordance with the contract and the cash flows that

the Group expects to receive);

• Undrawn loan commitments: as the present value of the difference between the contractual cash flows that are

due to the Group if the commitment is drawn down and the cash flows that the Group expects to receive; and

• If the expected restructuring will not result in derecognition of the existing asset, then the expected cash flows

arising from the modified financial asset are included in calculating the cash shortfalls from the existing asset.

Expected credit loss (ECL) (continued)

• Stage 1 – financial assets that are not significantly deteriorated in credit quality since origination. The

impairment allowance is recorded based on 12 months Probability of Default (PD).

• Stage 2 – financial assets that has significantly deteriorated in credit quality since origination. The impairment

allowance is recorded based on lifetime ECL. The impairment allowance is recorded based on life time PD.

Expected credit losses are discounted to the reporting date at the effective interest rate (EIR) determined at initial

recognition or an approximation thereof and consistent with income recognition.

• If the expected restructuring will result in derecognition of the existing asset, then the expected fair value of the

new asset is treated as the final cash flow from the existing financial asset at the time of its derecognition. This

amount is included in calculating the cash shortfalls from the existing financial asset that are discounted from the

expected date of derecognition to the reporting date using the original special commission rate of the existing

financial asset.

Restructured financial assets

_____________________________________________________________________________________________________

29






(3.29)

Debt instruments measured at FVOCI

• The Group recognizes a loss allowance for financial assets that are measured at fair value through other

comprehensive income on the statement of other comprehensive income which will not reduce the carrying

amount of the financial asset in the statement of financial position.

• Generally, as a provision; in other liabilities.

• Where the Group cannot identify the ECL on the financing and advances commitment component separately

from those on the drawn component, the Group presents a combined loss allowance for both components. The

combined amount is presented as a deduction from the gross carrying amount of the drawn component. Any

excess of the loss allowance over the gross amount of the drawn component is presented as a provision.

• The restructuring of a loan or advance by the Bank on terms that the Bank would not consider otherwise ;

• The disappearance of an active market for a security because of financial difficulties.

Loan commitments and financial guarantee contracts

Financial assets measured at amortised cost

• The market's assessment of creditworthiness as reflected in the investment yields;

• The rating agencies' assessments of creditworthiness;

• The probability of debt being restructured, resulting in holders suffering losses through voluntary or mandatory

debt forgiveness; and

• The international support mechanisms in place to provide the necessary support as 'lender of last resort' to that

country, as well as the intention, reflected in public statements, of governments and agencies to use those

mechanisms. This includes an assessment of the depth of those mechanisms and, irrespective of the political

intent, whether there is the capacity to fulfil the required criteria.

Allowances for ECL are presented in the consolidated statement of financial position as follows:

• The country's ability to access the capital markets for new debt issuance;

In making an assessment of whether an investment in sovereign debt is credit-impaired, the Group considers the

following factors:

Financial instrument includes both a drawn and an undrawn component

At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-impaired. A

financial asset is 'credit-impaired' when one or more events that have detrimental impact on the estimated future cash

flows of the financial asset have occurred.

Credit-impaired financial assets

• As a deduction from the gross carrying amount of the assets.

The Financing and advances that have been renegotiated due to deterioration in the borrower's condition is usually

considered to be credit-impaired unless there is evidence that the risk of not receiving contractual cash flows has

reduced significantly and there are no other indicators of impairment. In addition, a loan that is overdue for 90 days or

more is considered impaired.

Evidence that a financial asset is credit-impaired includes the following observable data:

• It is becoming probable that the borrower will enter bankruptcy or other financial reorganization; or

• A breach of contract such as a default or past due event;

• Significant financial difficulty of the borrower or issuer;

_____________________________________________________________________________________________________

30






(3.30)

(3.31)

(3.32)

(3.33)

(3.34)

To the extent possible, the Group uses active market data for valuing financial assets held as collateral. Other

financial assets which do not have readily determinable market values are valued using models. Non-financial

collateral, such as real estate, is valued based on data provided by third parties such as mortgage brokers, or based on

housing price indices.

Collateral repossessed

Cash and cash equivalents

For the purpose of the consolidated statement of cash flows, cash and cash equivalents are defined as those amounts

included in cash, balances with SAMA, excluding statutory deposits, and due from banks and other financial

institutions with original maturity of three months or less which are subject to insignificant risk of changes in their

fair value.

Investment management services

The financial statements of investment management funds are not included in the consolidated financial statements of

the Group.

Assets held in trust or in a fiduciary capacity are not treated as assets of the Group and, accordingly, are not included

in these consolidated financial statements.

Financing, Advances and debt securities are written off (either partially or in full) when there is no realistic prospect

of recovery. However, financial assets that are written off could still be subject to enforcement activities in order to

comply with the Group's procedures for recovery of amounts due.

Collateral valuation

To mitigate its credit risks on financial assets, the Group seeks to use collateral, where possible. The collateral comes

in various forms, such as cash, securities, letters of credit/guarantees, real estate, receivables, inventories, other non-

financial assets and credit enhancements such as netting agreements. Collateral, unless repossessed, is not recorded

on the Group’s consolidated statement of financial position. However, the fair value of collateral affects the

calculation of ECLs. It is generally assessed, at a minimum, at inception and re-assessed on a periodic basis.

However, some collateral, for example, cash or securities relating to margining requirements, is valued daily.

The Group’s policy is to determine whether a repossessed asset can be best used for its internal operations or should

be sold. Assets determined to be useful for the internal operations are transferred to their relevant asset category at the

lower of their repossessed value or the carrying value of the original secured asset. Assets for which selling is

determined to be a better option are transferred to assets held for sale at their fair value (if financial assets) and fair

value less cost to sell for non-financial assets at the repossession date in, line with the Group’s policy.

Write-off

_____________________________________________________________________________________________________

31






(3.35)

(3.35.4) Mudarabah

Mudaraba is a form of participation in profit where the client provides the capital to the bank or vice versa depending

on the product type. The capital owner is called the “Rab Almaal” and the worker is “Mudharib”. The worker duty is

to invest the capital in activities that comply with Shariah rules. The income is divided according to the agreement.

In the case of loss, “Rab Almaal” has to bear all the losses from his capital and the “Mudharib” loses his efforts.

Examples of the products in which the bank uses the Mudaraba are Islamic Mudaraba Certificates, Mudaraba Call

Accounts, and Tier 1 Sukuks.

Murabaha is a financing agreement whereby the Bank purchases and owns commodities based on client's request and

sells them to the client with a specified agreed price (including the cost of the bank plus a profit margin) and paid as

agreed.

Examples of products in which the bank uses Ijara are auto lease with promises to transfer ownership, residential

finance, commercial real estate finance, and structured finance. The main uses of forward Ijara are in structured

finance.

In the Ijara contract, the bank promises to transfer ownership of the assets to its customers at the end of the lease

period, either by sale at nominal prices or in the form of grants.

The bank has two types of Ijara forms based on the lease contract. Ijarah with the promise of transfer ownership,

which is based on requests from customers, either purchases assets with agreed-upon specifications on a cash basis

and leases them to customers for an agreed-upon rent to be settled in agreed-upon installments. The second type is

forward Ijara, which assets are not in existence and not specified. In this case, it remains a liability on the bank to

deliver the agreed upon usufruct.

(3.35.3) Ijara

(3.35.1) Murabaha

Examples of products in which the bank uses Murabaha are residential finance, commercial real estate, and trade

finance, commercial finance, trade finance, deposit products for customers and inter-bank Murabaha.

(3.35.2) Tawarruq

Tawarruq is financing instrument for customers in need of cash financing. It involves the bank buying commodities

from international or local markets and selling them to customers at agreed-upon deferred installment terms.

Customers, on their own, or by appointing an agent, resell the commodities to third parties for cash.

Examples of products in which the bank uses Tawarruq are in residential finance for individuals (Self-Construction /

Sale on the map), personal finance, credit cards, corporate finance, structured finance, syndications, as well as

interbank transactions.

Beside conventional banking products, the Group offers certain banking products that comply with Shariah rules.

These products are approved and overseen by respective Shariah Boards and Shariah advisor at the Bank and its

subsidiaries. Shariah complaint products are treated under International Financial Reporting Standards (IFRS) and in

accordance with the accounting policies used in the preparation of these consolidated financial statements.

Banking products that comply with Shariah rules are based on several Islamic types, including but not limited to:

Banking products that comply with Shariah rules

_____________________________________________________________________________________________________

32






(3.35)

(3.35.5) Promise

(3.36)

(3.37)

(3.37.3) Rates Products

Promise is a mandatory commitment by the Bank to its client or vice versa to enter into a sale or purchase transaction

for the purpose of hedge against fluctuations in index prices, commodity prices and currency prices.

Examples of products in which the bank uses the promise are structured hedging products and structured investment

products.

(3.36.1) AlKhairaat

AlKhairaat is a Shariah-compliant product based on commodity Murabaha. The Group acts as an agent for its

customers in purchasing commodities on their behalf with their funds and then purchases these commodities for its

own account from customers at agreed-upon price and deferred maturities (3,6,9 or 12 months). Being a retail

product, customers are allowed to choose the investment amount, tenure, and currency. Since the Group purchases

commodities from its customers, it is liable to them for the capital they invested plus a profit.

(3.36.2) Structured AlKhairaat

This product is an enhanced deposit product which provides a Shariah compliant alternative to structured deposits. It

combines a AlKhairaat placement with a promise to enter into a secondary Murabaha transaction for the benefit of the

customer where the profit will be linked to a predetermined index. These are capital protected up to a specified

percentage (typically 95-100%).

These products are offered to clients to offer them a return that is typically higher than a standard AlKhairaat. There

are based on the Structured AlKhairaat product and are designed to give the customers exposure to a number of

indices including foreign currencies, precious metals and Shariah compliant equity indices.

(3.37.2) Structured Investment Products

(3.37.1) Structured Hedging Products

The Group offers its customers certain deposit products that comply with Shariah rules. These are approved and

overseen by respective Shariah Boards at the Bank and its subsidiaries

These products are offered to clients to hedge their existing exposure to foreign currencies. It is based on the concept

of Waad (binding promise) where the Group promises to buy/sell a particular amount of foreign currency at an agreed

upon price. It may include only one Waad or a combination of Waads.

These Shariah-compliant deposit products are accounted for in conformity with the accounting policies described in

these consolidated financial statements. They are included in customers' deposit.

Shariah-compliant treasury products

The Group offers its customers certain treasury products that comply with Shariah rules. These products are approved

and overseen by respective Shariah Boards and Shariah advisor at the Bank and its subsidiaries.

These products are offered to clients who have exposure to fixed/floating rates and need hedging solutions. The

products are designed around the concept of Waad to enter into Murabaha where the profit is based on a rates index

or formula. It may include only one Waad or a combination of Waads.

(3.37.4) Commodity Products

Banking products that comply with Shariah rules (continued)

Shariah-compliant deposit products

All the above Shariah-compliant financing products are accounted for in conformity with the accounting policies

described in these consolidated financial statements. They are included in financing and advances.

These products are offered to clients who have exposure to commodity prices and need hedging solutions. These

products are designed around the concept of Waad to enter into Murabaha where the profit is based on a commodity

price index. It may include only one Waad or a combination of Waads.

_____________________________________________________________________________________________________

33






(3.38)

(3.39)

(3.40)

(a) Short Term Incentive Plan (Annual Performance Bonus)

Benefits payable to the employees of the Group at the end of their services are accrued based on actuarial valuation

and are included in other liabilities in the consolidated statement of financial position.

Staff compensation

Treasury shares

Treasury shares are recorded at acquisition cost and presented as a deduction from equity. Any gains or losses on

disposal of such shares are reflected under equity and are not recognised in the consolidated statement of income.

End of service benefits

The provision for end of service benefits is based on IAS 19 "Employee Benefits", the rules stated under the Saudi

Arabian Labor and Workmen Law and in accordance with the local statutory requirements of the foreign branches

and subsidiaries. The provision for the Group is also in line with independent actuarial valuation.

(3.40.1) Fixed Compensation

(3.40.2) Variable Compensation

The cost of this plan is recognised in the consolidated statement of income of the year to which it relates and is

normally paid during the 1st quarter of the following year.

The Group has established a regular performance appraisal process aimed at assessing employees’ performance and

contribution. Annual performance bonus payments are based on employee contributions, business performance and

the Group’s overall results. The overall annual performance bonus pool is set as a percentage of the Group’s net

income, adjusted to reflect the core performance of the employees. The Group does not operate a guaranteed bonus

plan.

The annual performance bonus aims at supporting the achievement of a set of annual financial and non-financial

objectives. The financial objectives relate to the economic performance of the Group's business, while the non-

financial objectives relate to some other critical objectives relating, for example, to complying with risk and control

measures, employees development, teamwork, staff morale etc.

The fixed compensation includes salaries, allowances and benefits. Salaries are set in relation to market rates to

attract, retain and motivate talented individuals. Salary administration is based on key processes such as job

evaluation, performance appraisal and pay scales structure. The competitiveness of pay scales is monitored and

maintained through participation in regular market pay surveys.

Variable compensation aims at driving performance and limiting excessive risk taking. The Group operates three

plans under variable compensation:

The Nomination, Compensation and Governance Committee was established by the Board of Directors and is

composed of three non-executive members including the Chairman of the Committee. The Committee's role and

responsibilities are in line with SAMA’s Compensation Rules.

The Committee is responsible for the development and implementation of the compensation system and oversight of

its execution, with the objective of preventing excessive risk-taking and promoting corporate financial soundness.

The Committee submits its recommendations, resolutions and reports to the Board of Directors for approval.

Key elements of compensation in the Bank:

The Bank’s Board of Directors and its Nomination, Compensation and Governance Committee oversee the design

and implementation of the Bank's Compensation System in accordance with SAMA’s Compensation Rules, local

statutory requirements of the foreign branches and subsidiaries and Financial Stability Board's (FSB) Principles and

Standards of Sound Compensation Practice.

_____________________________________________________________________________________________________

34






(3.40)

(3.41)

(3.42)

Tier 1 Sukuk

The Group classifies Sukuk issued with no fixed redemption/maturity dates (Perpetual Sukuk) and not obliging the

Group for payment of profit as part of equity.

The related initial costs and distributions thereon are recognised directly in the consolidated statement of changes in

equity under retained earnings.

Government grant

The Bank recognizes a government grant related to income, if there is a reasonable assurance that it will be received

and the Bank will comply with the conditions associated with the grant. The benefit of a government loan at a below-

market rate of interest is treated as a government grant related to income. The below-market rate loan is recognised

and measured in accordance with IFRS 9 Financial Instruments. The benefit of the below-market rate of interest is

measured as the difference between the initial carrying value of the loan determined in accordance with IFRS 9 and

the proceeds received. The benefit is accounted for in accordance with IAS 20 "Accounting for government grants

and disclosure of government assistance ". Government grant is recognised in statement of income on a systematic

basis over the periods in which the bank recognises related costs for which the grant is intended to compensate.

The Bank acquires its own shares in connection with the anticipated grant of shares to the key management in future.

Until such time as the beneficial ownership of such shares in the Group passes to the employees, the unallocated /

non-vested shares are treated as treasury shares.

In cases, where an award is forfeited (i.e. when the vesting conditions relating to award are not satisfied), the Bank

reverses the expense relating to such awards previously recognised in the consolidated statement of income. Where an

equity-settled award is cancelled (other than forfeiture), it is treated as if it vested on the date of cancellation, and any

expense not yet recognised for the award is recognised immediately.

If the employees are not entitled to dividends declared during the vesting period, then the fair value of these equity

instruments is reduced by the present value of dividends expected to be paid compared with the fair value of equity

instruments that are entitled to dividends. If the employees are entitled to dividends declared during the vesting

period, then the accounting treatment depends on whether the dividends are forfeitable. Forfeitable dividends are

treated as dividend entitlements during the vesting period. If the vesting conditions are not met, then any true-up of

the share-based payment would recognise the profit or loss effect of the forfeiture of the dividend automatically

because the dividend entitlements are reflected in the grant-date fair value of the award.

The Bank maintains an equity-settled share based payment plan for its key management. The grant-date fair value of

such share-based payment arrangement granted to employees is recognised as an expense, with a corresponding

increase in equity, over the vesting period of the awards. The amount recognised as an expense is adjusted to reflect

the number of awards for which the related service and non-market performance conditions are expected to be met,

such that the amount ultimately recognised is based on the number of awards that meet the related service and non-

market performance conditions at the vesting date. For share-based payment awards with non-vesting conditions, the

grant-date fair value of the share-based payment is measured to reflect such conditions and there is no true-up for

differences between expected and actual outcomes.

(b) Share Based Payment Plan

(3.40.2) Variable Compensation (continued)

Staff compensation (continued)

_____________________________________________________________________________________________________

35





4. CASH AND BALANCES WITH SAMA

2020 2019

SAR ’000 SAR ’000

7,540,843 9,521,562

23,045,358 19,728,953

26,237,476 16,131,694 ─────── ───────

Cash and balances with SAMA 56,823,677 45,382,209 ═══════ ═══════

5. DUE FROM BANKS AND OTHER FINANCIAL INSTITUTIONS, NET

2020 2019

SAR ’000 SAR ’000

6,637,388 5,989,350

6,066,557 9,641,305

936,315 938,822

(3,438) (4,183)─────── ──────

13,636,822 16,565,294 ═══════ ══════

Reverse repos (note 32(d))

Cash in hand

Money market placements and current accounts

Balances with SAMA:

Statutory deposit

Due from banks and other financial institutions, net

Expected credit loss allowance

In accordance with article (7) of the Banking Control Law and regulations issued by SAMA, the Bank is required to

maintain a statutory deposit with SAMA at stipulated percentages of its demand, savings, time and other deposits

calculated at the end of each Gregorian month (see note 35). The statutory deposits with SAMA are not available to

finance the Bank’s day-to-day operations and therefore are not part of cash and cash equivalents.

Current accounts

Money market placements

_____________________________________________________________________________________________________

36





6. INVESTMENTS, NET

(6.1) Investments are classified as follows:

Domestic International Total

2020

26,183 1,683,247 1,709,430

306,581 36,933 343,514

2,078,897 4,824,749 6,903,646 ─────── ─────── ───────

2,411,661 6,544,929 8,956,590

19,409,294 23,431,890 42,841,184

7,143,131 8,589,730 15,732,861

2,500,205 266,062 2,766,267 ─────── ─────── ───────29,052,630 32,287,682 61,340,312

42,344,655 7,565,358 49,910,013

23,275,743 1,436,649 24,712,392

(5,144) (61,468) (66,612)─────── ─────── ───────65,615,254 8,940,539 74,555,793

─────── ─────── ───────97,079,545 47,773,150 144,852,695

═══════ ═══════ ═══════

2019

- 1,100,817 1,100,817

554,946 1,432,504 1,987,450

1,961,439 3,300,724 5,262,163 ─────── ─────── ───────

2,516,385 5,834,045 8,350,430

24,269,941 21,583,235 45,853,176

5,241,539 7,372,112 12,613,651

2,086,580 160,628 2,247,208 ─────── ─────── ───────31,598,060 29,115,975 60,714,035

29,783,462 8,677,559 38,461,021

24,906,296 1,737,381 26,643,677

(21,492) (71,099) (92,591)

─────── ─────── ───────54,668,266 10,343,841 65,012,107

─────── ─────── ───────88,782,711 45,293,861 134,076,572

═══════ ═══════ ═══════

Equity instruments

Fixed rate securities


Floating rate securities

Equity instruments

Held at FVOCI, net

Held at FVIS


Held at amortised cost, net



Equity instruments

Mutual Funds, Hedge Funds and Others

Held at FVIS


SAR ’000

Investments, net

Mutual Funds, Hedge Funds and Others



Equity instruments

Held at FVOCI, net



Held at amortised cost, net

Investments, net


____________________________________________________________________________________________________

37





6. INVESTMENTS, NET (continued)

Stage 1 Stage 2 Stage 3

2020

12 month ECL

Lifetime ECL

not credit

impaired

Lifetime ECL

credit impaired Total

75,693 102,562 - 178,255 - - - -

19,251 (18,051) - 1,200

- - - - (174) 174 - -

- - - - (149) - - (149)

─────── ─────── ─────── ───────

94,621 84,685 - 179,306 ═══════ ═══════ ═══════ ═══════


2019

12 month ECL

Lifetime ECL

not credit

impaired

Lifetime ECL

credit

impaired Total

Balance as at 1 January 2019 104,331 102,077 - 206,408

(28,532) 495 - (28,037)

- - - -

- - - -

- - - -

(106) (10) - (116)

─────── ─────── ─────── ───────

75,693 102,562 - 178,255

═══════ ═══════ ═══════ ═══════

Net ECL charge/(reversal)

Transfer to stage 1

Transfer to stage 2

Transfer to stage 3

Foreign currency translation and other adjustments

Balance as at 31 December 2019

SAR '000

Transfer to stage 3

(6.2) An analysis of changes in expected credit loss allowance for debt instruments carried at amortized cost and FVOCI, is as

follows:

Balance as at 1 January 2020

Foreign currency translation and other adjustments

SAR '000

Transfer to stage 2

Net ECL charge/(reversal)


Transfer to stage 1

____________________________________________________________________________________________________

38






(6.3) The analysis of the composition of investments is as follows:

Quoted Unquoted Total

87,032,293 7,428,334 94,460,627

29,495,100 10,950,153 40,445,253

4,453,548 5,559,879 10,013,427

(61,510) (5,102) (66,612)

─────── ─────── ───────120,919,431 23,933,264 144,852,695

═══════ ═══════ ═══════

Quoted Unquoted Total

83,056,877 2,358,137 85,415,014

28,659,864 10,597,464 39,257,328

5,109,344 4,387,477 9,496,821

(71,591) (21,000) (92,591)

─────── ─────── ───────116,754,494 17,322,078 134,076,572

═══════ ═══════ ═══════

(a)

(b)

(c)

(6.4) Securities lending transactions

Investments, net



Equity instruments, Mutual Funds, Hedge Funds and Others

───────────────────────

2019

SAR '000



2020

SAR '000───────────────────────

Investments, net, include securities that are issued by the Ministry of Finance of Saudi Arabia amounting to SAR 75,471 million,

(2019: SAR 69,154 million) and also include investment in Sukuks amounting to SAR 21,299 million, (2019: SAR 19,943 million).

Dividend income recognized during 2020 for FVOCI investments amount to SAR 94 million (2019: SAR 96 million).

The Group pledges financial assets for the securities lending transactions which are generally conducted under terms that are usual

and customary for standard securitised borrowing contracts. As at 31 December 2020, securities amounting to SAR 4,488 million

(2019: SAR 1,115 million) have been lent to counterparties under securities lending transactions.



Investments, net

Equity instruments, Mutual Funds, Hedge Funds and Others

Investments held at amortised cost include investments amounting to SAR 4,145 million (2019: SAR 4,654 million) which are held

under a fair value hedge relationship. As at 31 December 2020, the fair value of these investments amounts to SAR 4,976 million

(2019: SAR 5,078 million).

____________________________________________________________________________________________________

39





Gross Gross

Carrying unrealised unrealised Fair

value gain loss value

49,910,013 1,665,223 (82,948) 51,492,288

24,712,392 21,819 (110,521) 24,623,690

(66,612) - - (66,612)

─────── ─────── ─────── ───────74,555,793 1,687,042 (193,469) 76,049,366

═══════ ═══════ ═══════ ═══════

Gross Gross

Carrying unrealised unrealised Fair

value gain loss value

38,461,021 583,247 (102,686) 38,941,582

26,643,677 - (103,824) 26,539,853

(92,591) - - (92,591)

─────── ─────── ────── ──────

65,012,107 583,247 (206,510) 65,388,844

═══════ ═══════ ═══════ ═══════

(6.6) Counterparty analysis of the Group's investments, net of impairment

2020 2019

SAR '000 SAR '000

118,806,193 113,895,665

14,018,094 10,618,782

12,028,408 9,562,125

─────── ───────144,852,695 134,076,572

═══════ ═══════

Total investments held at amortised cost, net

──────────────────────────────



(6.5) The analysis of unrealised revaluation gains/(losses) and fair values of investments held at amortised cost are as follows:

(a) Investments held at amortised cost

2020

SAR '000




Total investments held at amortised cost, net


2019

SAR '000

Investment, net

Government and Quasi Government

Corporate

──────────────────────────────

Banks and other financial institutions

_______________________________________________________________________________________________________________

40




7. FINANCING AND ADVANCES, NET

(7.1) Financing and advances, net

Consumer &

Credit card Corporate International Others Total

2020

174,645,382 134,586,755 22,204,583 17,934,360 349,371,080

585,384 4,205,720 1,337,331 - 6,128,435

─────── ─────── ─────── ─────── ────────

175,230,766 138,792,475 23,541,914 17,934,360 355,499,515

(1,428,589) (6,098,780) (1,209,709) (54,299) (8,791,377)

─────── ─────── ─────── ─────── ────────173,802,177 132,693,695 22,332,205 17,880,061 346,708,138 ═══════ ═══════ ═══════ ═══════ ════════

Consumer &


2019

123,710,750 129,824,697 18,884,948 11,455,493 283,875,888

599,336 3,051,591 1,678,469 - 5,329,396

─────── ─────── ─────── ─────── ────────

124,310,086 132,876,288 20,563,417 11,455,493 289,205,284

(1,658,004) (4,623,323) (1,039,418) (41,207) (7,361,952)

─────── ─────── ─────── ─────── ────────122,652,082 128,252,965 19,523,999 11,414,286 281,843,332 ═══════ ═══════ ═══════ ═══════ ═══════

2020 2019

SAR '000 SAR '000

55,478,114 33,117,063

198,850,302 158,595,955

43,534,646 44,090,105

13,982,821 9,609,592 ─────── ───────311,845,883 245,412,715

(8,514,627) (6,973,246)

─────── ───────303,331,256 238,439,469

═══════ ═══════

Financing and advances, net (in compliance with Shariah rules)

Other Islamic Products

Total Gross Financing

Others includes financing to financial institutions.

Murabaha

Tawarooq

Ijara

Below is a breakdown by financing products, included in financing and advances, net, in compliance with Shariah rules:

Allowance for financing losses (ECL

allowance)

Financing and advances, net

Special commission income relating to non-performing financing and advances is SAR 238 million (2019: SAR 178 million).

SAR ’000

Performing financing and advances

Non-performing financing and advances

Total financing and advances


allowance) (note 7.2)

SAR ’000

Performing financing and advances

Non-performing financing and advances


Total financing and advances


allowance) (note 7.2)

_____________________________________________________________________________________________________

41




7. FINANCING AND ADVANCES, NET (continued)


12 month ECL

Lifetime ECL

not credit

impaired

Lifetime

ECL credit

impaired Total

Consolidated

Balance as at 1 January 2020 1,715,623 1,581,526 4,064,803 7,361,952

375,134 875,565 1,504,696 2,755,395

53,850 (33,103) (20,747) -

(295,007) 318,300 (23,293) -

(29,498) (270,507) 300,005 -

- - (1,088,674) (1,088,674)

(12,332) (23,857) (201,107) (237,296)

─────── ─────── ─────── ───────

1,807,770 2,447,924 4,535,683 8,791,377

═══════ ═══════ ═══════ ═══════


12 month ECL

Lifetime ECL

not credit

impaired

Lifetime

ECL credit

impaired Total

Consolidated

Balance as at 1 January 2019 2,566,045 1,097,784 3,762,188 7,426,017

(698,949) 588,380 2,257,801 2,147,232

63,750 (43,923) (19,827) -

(125,490) 138,741 (13,251) -

(58,081) (152,811) 210,892 -

- - (2,068,052) (2,068,052)

(31,652) (46,645) (64,948) (143,245)

─────── ─────── ─────── ───────

1,715,623 1,581,526 4,064,803 7,361,952

═══════ ═══════ ═══════ ═══════

Transfer to stage 3

Bad debts written off

Foreign currency translation adjustment

SAR '000

Net impairment charge/(reversal)

(7.2) Movement in loss allowance for financing and advances at amortised cost for the year is as follows:

Transfer to stage 1

2020

Transfer to stage 2


2019

Transfer to stage 2


SAR '000


Transfer to stage 1

Transfer to stage 3



_____________________________________________________________________________________________________

42






Consumer and Credit card 12 month ECL

Lifetime ECL

not credit

impaired

Lifetime

ECL credit

impaired Total

Balance as at 1 January 2020 1,233,577 165,943 258,484 1,658,004

(329,526) 80,708 948,931 700,113

46,982 (28,710) (18,272) -

(73,749) 84,075 (10,326) -

(21,318) (15,808) 37,126 -

- - (928,553) (928,553)

- - (975) (975) ─────── ─────── ─────── ───────

855,966 286,208 286,415 1,428,589 ═══════ ═══════ ═══════ ═══════


Consumer and Credit card 12 month ECL

Lifetime ECL

not credit

impaired

Lifetime

ECL credit

impaired Total

Balance as at 1 January 2019 1,188,157 186,867 300,289 1,675,313

26,667 2,525 988,014 1,017,206

62,783 (42,956) (19,827) -

(17,414) 30,665 (13,251) -

(5,132) (11,158) 16,290 -

- - (1,005,709) (1,005,709)

(21,484) - (7,322) (28,806) ─────── ─────── ─────── ───────

1,233,577 165,943 258,484 1,658,004 ═══════ ═══════ ═══════ ═══════

(7.2) Movement in loss allowance for financing and advances at amortised cost for the year is as follows: (continued)

2019



Transfer to stage 1

Transfer to stage 2

Transfer to stage 3


SAR '000

Transfer to stage 3

2020

SAR '000



Transfer to stage 1

Transfer to stage 2


Others

Others

_____________________________________________________________________________________________________

43






Corporate 12 month ECL

Lifetime ECL

not credit

impaired

Lifetime

ECL credit

impaired Total

Balance as at 1 January 2020 397,225 1,330,309 2,895,789 4,623,323

663,375 656,664 260,838 1,580,877

5,763 (3,288) (2,475) -

(220,038) 233,005 (12,967) -

(8,180) (250,443) 258,623 -

- - (106,395) (106,395)

- - 975 975 ─────── ─────── ─────── ───────

838,145 1,966,247 3,294,388 6,098,780 ═══════ ═══════ ═══════ ═══════


Corporate 12 month ECL

Lifetime ECL

not credit

impaired

Lifetime

ECL credit

impaired Total

Balance as at 1 January 2019 1,261,793 724,243 2,598,357 4,584,393

(760,629) 543,445 905,412 688,228

- - - -

(100,769) 100,769 - -

(24,654) (38,148) 62,802 -

- - (678,104) (678,104)

21,484 - 7,322 28,806 ─────── ─────── ─────── ───────

397,225 1,330,309 2,895,789 4,623,323 ═══════ ═══════ ═══════ ═══════

Transfer to stage 1

Others

Others

Transfer to stage 2

SAR '000

2019

2020

SAR '000



Transfer to stage 3




Transfer to stage 1

Transfer to stage 2

Transfer to stage 3



_____________________________________________________________________________________________________

44






International 12 month ECL

Lifetime ECL

not credit

impaired

Lifetime

ECL credit

impaired Total

Balance as at 1 January 2020 50,855 78,033 910,530 1,039,418

20,976 145,410 294,927 461,313

1,105 (1,105) - -

(1,220) 1,220 - -

- (4,256) 4,256 -

- - (53,726) (53,726)

(12,332) (23,857) (201,107) (237,296) ─────── ─────── ─────── ───────

59,384 195,445 954,880 1,209,709 ═══════ ═══════ ═══════ ═══════


International 12 month ECL

Lifetime ECL

not credit

impaired

Lifetime

ECL credit

impaired Total

Balance as at 1 January 2019 79,064 166,346 863,542 1,108,952

38,078 55,497 364,375 457,950

967 (967) - -

(7,307) 7,307 - -

(28,295) (103,505) 131,800 -

- - (384,239) (384,239)

(31,652) (46,645) (64,948) (143,245) ─────── ─────── ─────── ───────

50,855 78,033 910,530 1,039,418 ═══════ ═══════ ═══════ ═══════


Transfer to stage 2



Transfer to stage 1

Transfer to stage 2

Transfer to stage 3


2019

SAR '000





Transfer to stage 1

2020

SAR '000

Transfer to stage 3


_____________________________________________________________________________________________________

45






Others 12 month ECL

Lifetime ECL

not credit

impaired

Lifetime

ECL credit

impaired Total


20,309 (7,217) - 13,092

- - - -

- - - -

- - - -

- - - - ─────── ─────── ─────── ───────

54,275 24 - 54,299 ═══════ ═══════ ═══════ ═══════


Others 12 month ECL

Lifetime ECL

not credit

impaired

Lifetime

ECL credit

impaired Total


(3,065) (13,087) - (16,152)

- - - -

- - - -

- - - -

- - - - ─────── ─────── ─────── ───────

33,966 7,241 - 41,207 ═══════ ═══════ ═══════ ═══════

Transfer to stage 3




2019

SAR '000


Transfer to stage 1

Transfer to stage 2

2020

SAR '000

Transfer to stage 2

Transfer to stage 3



Transfer to stage 1


_____________________________________________________________________________________________________

46






12 month ECL

Lifetime ECL

not credit

impaired

Lifetime

ECL credit

impaired Total

375,135 875,565 1,504,695 2,755,395

29,008 (1,627) 19,935 47,316

- - (708,228) (708,228)

- 25,000 24,447 49,447

(194,695) 452 - (194,243)─────── ─────── ─────── ───────

209,448 899,390 840,849 1,949,687

═══════ ═══════ ═══════ ═══════


12 month ECL

Lifetime ECL

not credit

impaired

Lifetime

ECL credit

impaired Total

(698,949) 588,381 2,257,800 2,147,232

(79,528) (24,076) 71,825 (31,779)

- - (685,383) (685,383)

- 21,364 8,400 29,764

(11,201) (1,469) - (12,670)─────── ─────── ─────── ───────

(789,678) 584,200 1,652,642 1,447,164

═══════ ═══════ ═══════ ═══════

Recoveries of debts previously written-off

Direct write-off

2020

(7.3) Impairment charge for financing and advances losses in the consolidated statement of income represents:

Recoveries of debts previously written-off

Net charge for the year

Net charge for the year

SAR '000

Net impairment (reversal)/chargeProvision/(reversal) against indirect facilities

(included in other liabilities)

Others

Others

2019

Direct write-off

SAR '000

Net impairment (reversal)/chargeProvision/(reversal) against indirect facilities

(included in other liabilities)

_____________________________________________________________________________________________________

47






12 month

ECL

Life time

ECL not

credit

impaired

Lifetime

ECL credit

impaired -

266,859,904 17,015,984 5,329,396 289,205,284

(5,960,743) 5,960,743 - -

(702,236) - 702,236 -

- (1,184,782) 1,184,782 -

- 97,419 (97,419) -

693,674 (693,674) - -

35,432 - (35,432) -

74,390,349 (2,899,287) 470,830 71,961,892

- (1,088,674) (1,088,674)

(3,746,408) (495,295) (337,284) (4,578,987)

──────── ──────── ──────── ────────

331,569,972 17,801,108 6,128,435 355,499,515

═══════ ═══════ ════════ ════════


12 month

ECL

Life time

ECL not

credit

impaired

Lifetime

ECL credit

impaired

255,575,635 11,921,545 5,247,904 272,745,084

(8,709,422) 8,709,422 - -

(875,613) - 875,613 -

- (837,468) 837,468 -

- 35,030 (35,030) -

628,822 (628,822) - -

50,061 - (50,061) -

22,174,566 (1,828,328) 704,470 21,050,708

- - (2,068,052) (2,068,052)

(1,984,145) (355,395) (182,916) (2,522,456)

──────── ──────── ──────── ──────── 266,859,904 17,015,984 5,329,396 289,205,284

═══════ ═══════ ════════ ════════

Write-offs

Foreign exchange and other movements

Gross carrying amount as at 31 December 2019

Transfer from Stage 3 to Stage 1


Net increase/(decrease) during the year



Gross carrying amount as at 1 January 2019




(SAR '000)






Total

Gross carrying amount as at 1 January 2020

2020

(7.4) The following table further explains changes in gross carrying amount of the Financing and advances to help explain their

significance to the changes in the loss allowance for the same portfolio.

(SAR '000)

Total

Write-offs

Net increase/(decrease) during the year

Foreign exchange and other movements

Gross carrying amount as at 31 December 2020

2019

________________________________________________________________________________________________________

48





Gross

financing and

advances

ECL Financing and

advances allowance advances, net

2020 SAR' 000 SAR' 000 SAR' 000

Government and Quasi Government 6,605,847 (16,632) 6,589,215

Banks and other financial institutions 11,599,264 (40,746) 11,558,518

Agriculture and fishing 514,144 (29,587) 484,557

Manufacturing 32,218,477 (1,548,094) 30,670,383

Mining and quarrying 8,046,163 (41,534) 8,004,629

Electricity, water, gas and health services 19,507,642 (94,823) 19,412,819

Building and construction 14,344,103 (1,933,797) 12,410,306

Commerce 39,352,732 (3,072,633) 36,280,099

Transportation and communication 11,453,481 (103,935) 11,349,546

Others services 36,626,894 (481,007) 36,145,887

Consumers 175,230,768 (1,428,589) 173,802,179

─────── ─────── ────────

Financing and advances, net 355,499,515 (8,791,377) 346,708,138

═══════ ═══════ ════════

Gross

financing and

advances

ECL Financing and

advances allowance advances, net

2019 SAR' 000 SAR' 000 SAR' 000

Government and Quasi Government 4,278,827 (17,623) 4,261,204

Banks and other financial institutions 7,647,292 (24,499) 7,622,793

Agriculture and fishing 339,870 (22,982) 316,888

Manufacturing 31,551,874 (1,572,403) 29,979,471

Mining and quarrying 7,316,487 (29,170) 7,287,317

Electricity, water, gas and health services 18,115,248 (64,498) 18,050,750

Building and construction 13,813,941 (1,213,795) 12,600,146

Commerce 38,239,775 (2,347,551) 35,892,224

Transportation and communication 10,584,405 (73,648) 10,510,757

Others services 33,007,480 (337,779) 32,669,701

Consumers 124,310,085 (1,658,004) 122,652,081

──────── ──────── ──────── Financing and advances, net 289,205,284 (7,361,952) 281,843,332

═══════ ═══════ ════════

(7.5) Economic sector risk concentrations for the financing and advances and allowances for financing losses are as

follows:

__________________________________________________________________________________________________________

49





2020 2019

SAR '000 SAR '000

Gross finance lease receivables:

3,395,779 1,996,118

13,392,562 15,182,247

34,753,809 35,379,002

─────── ───────Total 51,542,150 52,557,367

(88,559) (86,349)

(2,402,446) (2,937,836)

(7,823,777) (8,735,247)

─────── ─────── Total (10,314,782) (11,759,432)

─────── ───────

3,307,220 1,909,769

10,990,116 12,244,411

26,930,032 26,643,755

─────── ───────41,227,368 40,797,935

═══════ ═══════

8. INVESTMENTS IN ASSOCIATES, NET

2020 2019

SAR '000 SAR '000

1,014,000 1,014,000

────── ────── 1,014,000 1,014,000

(575,517) (566,629)

3,131 2,560

- (11,448)

────── ────── (572,386) (575,517)

────── ────── 441,614 438,483

══════ ══════

Investment in associates, net

Less than 1 year

1 to 5 years

Over 5 years

Unearned finance income on finance leases

Share of results in associates

Dividends

At 31 December

1 to 5 years

Over 5 years

Total

As of 31 December 2020, the quoted share price of Alahli Takaful Company was SAR 34.90 (31 December 2019: SAR 25.25).

Commercial Real Estate Markets Company is not listed on any stock exchange.

Investment in associates primarily consists of a 60% (2019: 60%) ownership interest in the Commercial Real Estate Markets

Company and 29.9% (2019: 29.9%) ownership interest in Al-Ahli Takaful Company, which are both registered in the Kingdom

of Saudi Arabia.

Less than 1 year

1 to 5 years

Over 5 years

Net finance lease receivables:

Less than 1 year

Allowance for impairment and share of results:

At beginning of the year

Allowance for uncollectable finance lease receivables included in the allowance for expected credit losses is SAR 423 million

(2019: SAR 502 million).

At 31 December

(7.6) Financing and advances include finance lease receivables (including Ijara in compliance with Shariah rules) which

are analysed as follows:

Cost:

At the beginning of the year

__________________________________________________________________________________________________________

50




9. PROPERTY, EQUIPMENT AND SOFTWARE, NET

Land, Land,

buildings Furniture, Capital buildings Furniture, Capital

and leasehold equipment work in and leasehold equipment work in

improvements and vehicles Software progress Total improvements and vehicles Software progress Total

SAR '000 SAR '000 SAR '000 SAR '000 SAR '000 SAR '000 SAR '000 SAR '000 SAR '000 SAR '000

5,649,674 3,208,591 2,278,971 574,181 11,711,417 5,480,395 3,053,966 2,120,719 384,287 11,039,367

(114,316) (46,049) (42,284) (2,015) (204,664) (58,201) (24,996) (22,470) (634) (106,301)

181,664 135,166 39,333 752,325 1,108,488 90,350 126,915 30,614 564,636 812,515

(623) (3,135) (6,764) (168) (10,690) (1,000) (31,598) (1,505) (61) (34,164)

- 220,750 303,960 (524,710) - 138,130 84,304 151,613 (374,047) -

────── ────── ────── ────── ─────── ────── ────── ────── ────── ─────── 5,716,399 3,515,323 2,573,216 799,613 12,604,551 5,649,674 3,208,591 2,278,971 574,181 11,711,417

────── ────── ────── ────── ─────── ────── ────── ────── ────── ───────

2,429,063 2,446,284 1,339,494 - 6,214,841 2,243,226 2,135,309 1,313,220 - 5,691,755

(11,913) (25,080) (33,574) - (70,567) (7,211) (12,768) (19,413) - (39,392)

193,269 243,468 184,543 - 621,280 193,897 354,808 45,888 - 594,593

(599) (2,728) (130) - (3,457) (849) (31,065) (201) - (32,115)

────── ────── ────── ────── ─────── ────── ────── ────── ────── ───────2,609,820 2,661,944 1,490,333 - 6,762,097 2,429,063 2,446,284 1,339,494 - 6,214,841

────── ────── ────── ────── ─────── ────── ────── ────── ────── ───────

3,106,579 853,379 1,082,883 799,613 5,842,454 3,220,611 762,307 939,477 574,181 5,496,576

══════ ══════ ══════ ══════ ══════ ══════ ══════ ══════ ══════ ══════


Foreign currency translation

adjustment

Additions

Disposals and retirements

As at 31 December

Accumulated depreciation/amortisation:

Transfer from capital work in

progress


Foreign currency translation

adjustment

Charge for the year

Disposals and retirements

As at 31 December

Net book value:

As at 31 December

Cost:

2020 2019

_____________________________________________________________________________________________________

51




10. RIGHT OF USE ASSETS, NET

Branches ATMs 2020 2019

SAR '000 SAR '000 SAR '000 SAR '000

1,931,697 1,796,913

194,276 200,871

(36,347) (46,132)

(42,730) (19,955)

─────── ───────

2,046,896 1,931,697

═══════ ═══════

261,872 -

279,239 271,342

(10,340) (7,513)

(9,161) (1,957)

─────── ─────── 521,610 261,872

─────── ───────

1,525,286 1,669,825

═══════ ═══════

Additions

Terminations

As at 31 December



Accumulated depreciation


Charge for the year

Terminations

As at 31 December

Right of use assets, net

Cost:

At beginning of the year (note 3.3)

_____________________________________________________________________________________________________

52




11. OTHER ASSETS

2020 2019

SAR '000 SAR '000

Assets purchased under Murabaha arrangements 2,729,125 2,913,428 Prepayments and advances 946,354 1,024,032 Margin deposits against derivatives and repos 12,232,028 7,807,805 Other real estate, net (note 11.2) 964,562 1,283,387 Others 4,845,147 3,041,764

─────── ──────21,717,216 16,070,416

═══════ ══════

(11.2) Other Real Estate, Net

2020 2019

SAR '000 SAR '000

1,463,342 1,282,268

137,189 270,489

(200,305) (89,415)

────── ──────1,400,226 1,463,342

(195,702) (124,054)

(239,962) (55,901)

────── ────── (435,664) (179,955)

────── ──────964,562 1,283,387

══════ ══════

At 31 December

Provision for impairment

Disposals

At 31 December

Other real estate, net


Additions

Provision and foreign currency translation:

Cost:


Total

(11.1) Other Assets

_____________________________________________________________________________________________________

53




12. DERIVATIVES

(12.1)

(d) Structured derivative products

Forwards and futures are contractual agreements to either buy or sell a specified currency, commodity or financial instrument

at a specified price and date in the future. Forwards are customized contracts transacted in the over-the-counter market.

Foreign currency and special commission rate futures are transacted in standardized amounts on regulated exchanges.

Changes in futures contract values are settled daily.

Most of the Group’s derivative trading activities relate to sales, positioning and arbitrage. Sales activities involve offering

products to customers and banks in order, inter alia, to enable them to transfer, modify or reduce current and future risks.

Positioning involves managing market risk positions with the expectation of profiting from favorable movements in prices,

rates or indices. Arbitrage involves profiting from price differentials between markets or products.

Derivatives held for trading purposes

Structured derivative products provide financial solutions to the customers of the Group to manage their risks in respect of

foreign exchange, special commission rate and commodity exposures and enhance yields by allowing deployment of excess

liquidity within specific risk and return profiles. The majority of the Group's structured derivative transactions are entered on

a back-to-back basis with various counterparties.

(c) Options

Options are contractual agreements under which the seller (writer) grants the purchaser (holder) the right, but not the

obligation, to either buy or sell at a fixed future date or at any time during a specified period, a specified amount of a

currency, commodity or financial instrument at a pre-determined price.

Swaps are commitments to exchange one set of cash flows for another. For special commission rate swaps, counterparties

generally exchange fixed and floating rate special commission payments in a single currency without exchanging principal.

For currency swaps, fixed special commission payments and principal are exchanged in different currencies. For cross-

currency special commission rate swaps, principal and fixed and floating special commission payments are exchanged in

different currencies.

In the ordinary course of business, the Group utilises the following financial derivative instruments for both trading and

hedging purposes:

(b) Forwards and futures

(a) Swaps

_____________________________________________________________________________________________________

54




12. DERIVATIVES (continued)

(12.2)

The Group uses special commission rate swaps to hedge against the special commission rate risk arising from specifically

identified fixed special commission rate exposures. The Group also uses special commission rate swaps to hedge against the

cash flow risk arising on certain floating rate exposures. In all such cases, the hedging relationship and objective, including

details of the hedged items and hedging instrument, are formally documented and the transactions are accounted for as fair

value or cash flow hedges.

As part of its asset and liability management, the Group uses derivatives for hedging purposes in order to adjust its own

exposure to currency and special commission rate risks. This is generally achieved by hedging specific transactions as well as

strategic hedging against overall statement of financial position exposures. Strategic hedging does not qualify for special

hedge accounting and the related derivatives are accounted for as held for trading, such as special commission rate swaps,

special commission rate options and futures, forward foreign exchange contracts and currency options.

The Board of Directors has established levels of currency risk by setting limits on counterparty and currency position

exposures. Positions are monitored on a daily basis and hedging strategies are used to ensure that positions are maintained

within the established limits. The Board of Directors has established the level of special commission rate risk by setting limits

on special commission rate gaps for stipulated periods. Asset and liability special commission rate gaps are reviewed on a

periodic basis and hedging strategies are used to reduce special commission rate gaps to within the established limits.

The Group has adopted a comprehensive system for the measurement and management of risk (see note 33 - credit risk, note

34 - market risk and note 35 - liquidity risk). Part of the risk management process involves managing the Group's exposure to

fluctuations in foreign exchange and special commission rates to reduce its exposure to currency and special commission rate

risks to acceptable levels as determined by the Board of Directors within the guidelines issued by SAMA.

Derivatives held for hedging purposes

_____________________________________________________________________________________________________

55






Positive

fair value

Negative

fair value

Notional

amount

Within 3

months

3-12

months

1-5

years

Over 5

years

Monthly

average

6,991,247 (6,786,101) 256,078,981 7,468,087 32,097,108 142,723,012 73,790,774 278,300,894

570,598 (304,118) 134,838,083 59,740,076 30,733,795 44,364,212 - 107,375,512

86,211 (11,948) 2,136,745 186,744 1,852,953 97,049 - 1,223,842

72,541 (2,544,851) 11,178,835 - - 2,976,211 8,202,624 11,653,647

177,499 (97,425) 10,406,260 - 1,620,000 8,786,260 - 8,866,625

────── ────── ─────── ────── ────── ──────── ───────

7,898,096 (9,744,443) 414,638,904 67,394,907 66,303,856 198,946,744 81,993,398 ═══════ ════════ ════════ ════════ ════════ ════════ ═══════

Positive

fair value

Negative

fair value

Notional

amount

Within 3

months

3-12

months

1-5

years

Over 5

years

Monthly

average

4,621,626 (4,356,977) 251,474,994 4,489,740 31,959,613 144,789,404 70,236,237 250,019,987

395,879 (92,285) 79,739,479 34,923,677 16,366,658 28,449,144 - 66,910,086

11,292 (12,908) 377,245 163,027 214,218 - - 1,273,215

114,361 (1,543,746) 11,559,835 375,000 1,018,500 2,888,711 7,277,624 17,595,627

132,881 (75,664) 4,420,104 218,091 417,871 3,400,938 383,204 5,739,526

────── ────── ────── ────── ────── ─────── ─────── 5,276,039 (6,081,580) 347,571,657 40,169,535 49,976,860 179,528,197 77,897,065

══════ ══════ ══════ ══════ ══════ ═══════ ═══════

The tables below show the positive and negative fair values of derivatives, together with the notional amounts analysed by the term to maturity and monthly

average. The notional amounts, which provide an indication of the volumes of the transactions outstanding at the year end, do not necessarily reflect the

amounts of future cash flows involved. These notional amounts, therefore, are neither indicative of the Group’s exposure to credit risk, which is generally

limited to the positive fair value of the derivatives, nor to market risk.

Notional amounts by term to maturity

SAR '000

2020

Held for trading:

Special commission rate instruments

Forward foreign exchange contracts

Options

Held as fair value hedges:


Held as cash flow hedges:


Total

SAR '000

Notional amounts by term to maturity

2019

Held for trading:


Forward foreign exchange contracts

Options

Held as fair value hedges:


Held as cash flow hedges:


Total

__________________________________________________________________________________________________________________________________________

56






Fair

value Cost Risk

Positive

fair value

Negative

fair value

13,894,323 11,533,844 Fair value 72,541 (2,544,851)

10,720,066 10,428,740 Cash flow 177,499 (97,425)

12,914,262 11,663,087 Fair value 114,361 (1,543,746)

4,414,351 4,409,938 Cash flow 132,881 (75,664)

Within 1

year

1-3

years

3-5

years

Over 5

years

2020

Cash inflows (assets) 170,535 163,060 46,738 -

Cash outflows (liabilities) (131,505) (184,845) (57,786) -

────── ────── ────── ──────Net cash inflows (outflows) 39,030 (21,785) (11,048) -

══════ ══════ ══════ ══════

Within 1

year

1-3

years

3-5

years

Over 5

years

2019

Cash inflows (assets) 143,142 189,206 32,400 4,307

Cash outflows (liabilities) (99,795) (114,282) (30,712) (3,027)

────── ────── ────── ──────Net cash inflows (outflows) 43,347 74,924 1,688 1,280

══════ ══════ ══════ ══════

The table below shows a summary of hedged items and portfolios, the nature of the risk being hedged, the hedging instrument and its fair

value.

SAR '000

2020

Hedging instrument

Description of hedged items

Fixed rate instruments Special commission rate instruments

Description of hedged items

Fixed rate and floating rate

instruments Special commission rate instruments

2019

Fixed rate instruments Special commission rate instruments

Fixed rate and floating rate

instruments Special commission rate instruments

Approximately 56% (2019: 56%) of the positive fair value of the Group's derivatives are entered into with financial institutions and 44%

(2019: 44%) of the positive fair value contracts are with non-financial institutions at the consolidated statement of financial position

date. Derivative activities are mainly carried out under the Group's Treasury segment.

Cash flows hedges:

The Group is exposed to variability in future special commission cash flows on non-trading assets and liabilities which bear special

commission at a variable rate. The Bank generally uses special commission rate swaps as hedging instruments to hedge against these

special commission rate risks.

Below is the schedule indicating as at 31 December, the periods when the hedged cash flows are expected to occur and when they are

expected to affect profit or loss:

SAR' 000

SAR' 000

_________________________________________________________________________________________________________

57





13. DUE TO BANKS AND OTHER FINANCIAL INSTITUTIONS

2020 2019

SAR '000 SAR '000

4,456,847 6,013,422

48,017,832 18,975,537

22,553,478 37,197,085

─────── ───────75,028,157 62,186,044

═══════ ═══════

14. CUSTOMERS' DEPOSITS

2020 2019

SAR '000 SAR '000

319,375,606 250,700,137

82,930,812 90,023,429

14,112,303 12,665,749

──────── ───────416,418,721 353,389,315

════════ ═══════

International segment deposits included in customers' deposits comprise of:

2020 2019

SAR '000 SAR '000

14,527,235 9,450,761

14,396,398 15,685,172

878,556 471,915

─────── ───────29,802,189 25,607,848

═══════ ═══════

Details on foreign currency deposits included in customers' deposits as follows:

2020 2019

SAR '000 SAR '000

24,532,230 14,064,240

24,582,618 38,004,033

1,321,446 896,370

─────── ───────50,436,294 52,964,643

═══════ ═══════

Current accounts

Total

Other customers’ deposits include SAR 3,577 million (2019: SAR 3,685 million) of margins held for irrevocable

commitments and contingencies.

Money market deposits

Repos (note 32 (a))

Current and call accounts

Time

Others

Total


Time

Others

Total


Time

Others

Total

________________________________________________________________________________________________________

58





15. DEBT SECURITIES ISSUED

IssuerYear

of issueTenure Particulars

2020

SR '000

2019

SR '000

2015 5 years - 332,513

2019 2 months - 69,745

2020 6 months 484,180 -

2020 5 months 250,507 -

2020 3 months 302,327 613,843

2020 7 months 735,676 -

─────── ──────

1,772,690 1,016,101

═══════ ══════

2020 2019

SAR '000 SAR '000

Balance at beginning of the year 1,016,101 9,430,907

Debt securities issued 4,758,601 5,312,980

Debt securities payment (3,816,939) (13,244,516)

Foreign currency translation adjustment (185,073) (483,270)

─────── ─────── Balance at the end of the year 1,772,690 1,016,101

═══════ ═══════

Non-convertible unlisted sukuk, carrying

profit at a fixed rate payable semi-annually.

Non-convertible listed sukuk on the Borsa

Istanbul, carrying profit at a fixed rate.





Türkiye

Finans

Katılım

Bankası A.Ş.

Total

Movement of the debt securities issued during the year is as follows:





________________________________________________________________________________________________________

59





16. OTHER LIABILITIES

2020 2019

SAR '000 SAR '000

Zakat payable including subsidiaries (see note 16.1) 1,413,568 1,457,474

Staff-related payables 1,097,927 1,228,715

Accrued expenses and accounts payable 4,534,385 4,690,874

Allowances for indirect facilities 337,663 300,216

Employee benefit obligation (note 26) 1,426,694 1,203,645

Lease liabilities 1,754,951 1,825,149

Others 5,701,818 4,096,784

────── ────── 16,267,006 14,802,857

══════ ══════

17. SHARE CAPITAL

The authorized, issued and fully paid share capital of the Bank consists of 3,000,000,000 shares of SAR 10 each (31

December 2019: 3,000,000,000 shares of SAR 10 each). The share capital of the Bank excluding treasury shares (refer to note

25.2) consists of 2,990,418,206 shares of SAR 10 each (31 December 2019: 2,991,171,957 shares of SAR 10 each).

The Bank has calculated Zakat accruals for the year 2020 based on the applicable Zakat rules for financing institutions.

(16.1) The Group is subject to Zakat in accordance with the regulations of the General Authority of Zakat and Income Tax

(“GAZT”). Zakat expense is charged to the Consolidated statement of income.

Total

The Bank has submitted its Zakat return for the year ended 31 December 2019, and obtained the unrestricted Zakat certificate.

The GAZT did not finalize the study of the said year upto date.

________________________________________________________________________________________________________

60




18. STATUTORY RESERVE

19. OTHER RESERVES (CUMULATIVE CHANGES IN FAIR VALUES)

20. COMMITMENTS AND CONTINGENCIES

As at 31 December 2020 the Bank had capital commitments of SAR 1,156 million (2019: SAR 1,305 million) in respect of

building, equipment and software purchases and capital calls on private equity funds.

Credit-related commitments and contingencies mainly comprise letters of credit, guarantees, acceptances and commitments to

extend credit (irrevocable). The primary purpose of these instruments is to ensure that funds are available to customers as

required.

Guarantees including standby letters of credit, which represent irrevocable assurances that the Group will make payments in

the event that customers cannot meet their obligations to third parties, carry the same credit risk as financing and advances.

(20.1) Capital and other non-credit related commitments

Cash requirements under guarantees are normally considerably less than the amount of the related commitment because the

Group does not generally expect the third party to draw funds under the agreement.

Documentary letters of credit, which are written undertakings by the Group on behalf of a customer authorising a third party

to draw drafts on the Group up to a stipulated amount under specific terms and conditions, are generally collateralised by the

underlying shipment of goods to which they relate and therefore have significantly less risk.

Acceptances comprise undertakings by the Group to pay bills of exchange drawn on customers. The Group expects most

acceptances to be presented before being reimbursed by the customers.

Commitments to extend credit represent unused portions of authorisation to extended credit, principally in the form of

financing, guarantees and letters of credit. With respect to credit risk relating to commitments to extend unused credit lines,

the Group is potentially exposed to a loss in an amount which is equal to the total unused commitments. The likely amount of

loss, which cannot be reasonably estimated, is expected to be considerably less than the total unused commitments, since

most commitments to extend credit are contingent upon customers maintaining specific credit standards. The total

outstanding commitments to extend credit do not necessarily represent future cash requirements, as many of these

commitments could expire or terminate without being funded.

(20.2) Credit-related commitments and contingencies

In accordance with the Saudi Arabian Banking Control Law, a minimum of 25% of the annual net income after Zakat and

income tax, inclusive of the overseas branches, is required to be transferred to a statutory reserve up to where the reserve

equals a minimum amount of the paid up capital of the Bank. Moreover, in accordance with the Regulation for Companies in

Saudi Arabia, NCBC is also required to transfer a minimum of 10% of its annual net income (after Zakat and income tax) to

statutory reserve.

TFKB transfers 5% of its previous year annual net income after income tax to statutory reserve.

The statutory reserves are not currently available for distribution.

Other reserves represent the net unrealised revaluation gains (losses) of cash flow hedges (effective portion) and FVOCI

equity investments. The movement of other reserves during the year is included under consolidated statement of other

comprehensive income and the consolidated statement of changes in equity.

______________________________________________________________________________________________________

61




20. COMMITMENTS AND CONTINGENCIES (continued)

Within 3

months

3-12

months

1-5

years

Over 5

years Total

Letters of credit 5,724,191 3,302,303 382,022 20,274 9,428,790 Guarantees 6,860,120 14,662,454 7,341,464 1,798,062 30,662,100 Acceptances 1,138,357 707,081 69,743 8,355 1,923,536 Irrevocable commitments to extend credit - 334,531 4,080,674 5,959,860 10,375,065

─────── ─────── ─────── ────── ─────── Total 13,722,668 19,006,369 11,873,903 7,786,551 52,389,491

═══════ ═══════ ═══════ ══════ ═══════

Within 3

months

3-12

months

1-5

years

Over 5

years Total

Letters of credit 4,748,099 3,702,790 512,629 12,270 8,975,788 Guarantees 6,043,567 16,629,412 8,920,510 2,114,823 33,708,312 Acceptances 1,310,150 338,816 22,640 10,809 1,682,415 Irrevocable commitments to extend credit 1,450 2,143,117 2,168,099 5,156,408 9,469,074

─────── ────── ────── ────── ───────Total 12,103,266 22,814,135 11,623,878 7,294,310 53,835,589

═══════ ══════ ══════ ══════ ═══════

2020 2019

SAR '000 SAR '000

5,309,745 6,681,859

36,736,390 34,880,613

10,071,094 11,941,194

272,262 331,923

─────── ───────52,389,491 53,835,589

═══════ ═══════

21. NET SPECIAL COMMISSION INCOME

2020 2019

SAR '000 SAR '000

Special commission income:

Investments - FVOCI 1,955,295 1,236,824 Investments held at amortised cost 1,899,496 2,667,461

─────── ──────3,854,791 3,904,285

Due from banks and other financial institutions 356,676 648,473 Financing and advances 15,229,586 16,564,632

─────── ──────19,441,053 21,117,390

─────── ──────Special commission expense:

Due to banks and other financial institutions 711,894 1,396,881 Customers' deposits 1,850,539 2,897,310 Debt securities issued 191,971 440,746

─────── ──────2,754,404 4,734,937

─────── ──────16,686,649 16,382,453

═══════ ══════

Net special commission income

Others

Sub total - investments

(a) The contractual maturity structure of the Group's credit-related commitments and contingencies is as follows:

SAR '000

Total

(b) The analysis of commitments and contingencies by counterparty is as follows:

Banks and other financial institutions

Corporate and establishment

Government and Quasi Government

2020

(SAR '000)

2019

Total

Total

______________________________________________________________________________________________________

62




22. FEE INCOME FROM BANKING SERVICES, NET

2020 2019

SAR '000 SAR '000

Fee income:

Shares brokerage 762,467 239,835 Investment management services 626,306 583,668 Financing and advances 158,630 225,040 Credit cards 752,417 724,031 Trade finance 351,764 387,619 Others 403,728 483,603

─────── ───────3,055,312 2,643,796

─────── ───────Fee expenses:

Shares brokerage (268,335) (93,557)Investment management services (3,812) (5,055)Credit cards (613,877) (621,296)Others 90,352 (4,150)

────── ────── (795,672) (724,058)

────── ──────2,259,640 1,919,738

══════ ══════

23. INCOME FROM FAIR VALUE THROUGH INCOME STATEMENT (FVIS) FINANCIAL INSTRUMENTS, NET

2020 2019

SAR '000 SAR '000

788,539 651,376

27,428 288,376

────── ──────

815,967 939,752

══════ ══════

24. GAINS/INCOME ON NON-FVIS FINANCIAL INSTRUMENTS, NET

2020 2019

SAR '000 SAR '000

Gains on disposal of non-FVIS financial instruments 872,968 374,384

Dividend income from non-FVIS financial instruments 100,465 95,872

────── ──────973,433 470,256

══════ ══════

Total

Total

Fee income from banking services, net

Investments held at FVIS

Derivatives

Total

Total

______________________________________________________________________________________________________

63




25. SHARE BASED PAYMENTS RESERVE

(25.1) Employee share based payment plan:

Maturity dates

Total number of shares granted

Vesting period

Method of settlement

Fair value per share on grant date

26. EMPLOYEE BENEFIT OBLIGATION

(26.1) The characteristics of the end of service benefits scheme

(26.2) The valuation of the defined benefit obligation

2020 2019

Discount rate 2.8% 3.0%

Average age (years) 35 35

Sensitivity of actuarial assumptions

2020 2019

SAR '000 SAR '000

Discount rate +1% 135,411 82,800 Discount rate -1% (160,917) (88,800)

The table below illustrates the sensitivity of the end of service valuation as at 31 December 2020 and 2019:

(25.2) Treasury shares:

Employees' share based payment plan and Treasury shares:

Between Dec. 2020 and Dec. 2022

7,862,224

3 years

Equity

Average SAR 51.32

The Group operates an unfunded end of service benefit plan (the plan) for its employees based on the prevailing Saudi Labor

Laws and applicable laws for oversees branches and subsidiaries. The liability in respect of the plan is estimated by a

qualified external actuary in accordance with International Accounting Standard 19 – Employee Benefits, and using

“Projected Unit Credit Method”. The liability recognised in the consolidated statement of financial position in respect of the

plan is the present value of the defined benefit obligation at the end of the reporting period. During the year, based on the

actuarial assessment, a charge of SAR 159 million (2019: SAR 152 million) related to current service and interest cost was

recorded in the consolidated statement of income. The end of service liability is disclosed in note 16.

Liability under the plan is based on various assumptions (‘actuarial assumptions”) including the estimation of the discount

rate, inflation rate, expected rate of salary increase and normal retirement ages. Based on the assumptions, also taking into

consideration the future salary increases, cash outflows are estimated for the Group’s employees as a whole giving the total

payments expected over the future years, which are discounted to arrive at the closing obligation. Any changes in actuarial

assumptions from one period to another may effect the determination of the estimated closing obligation, which is accounted

for as an actuarial gain or loss for the period.

Critical assumptions used:

During the year ended 31 December 2020, the Bank acquired further treasury shares amounting to SAR 146 million (2019:

SAR 125 million) in connection with its employee share based payment plan (note 17), which has been duly approved by the

board of directors and concerned regulatory authorities.

The Bank established a share based compensation scheme for its key management that entitles the related personnel to be

awarded shares in the Bank subject to successfully meeting certain service and performance conditions. Under the share

based compensation scheme, the Bank has three outstanding plans. Significant features of these plans are as follows:

______________________________________________________________________________________________________

64




27. BASIC AND DILUTED EARNINGS PER SHARE

2020 2019 2020 2019

2,991,996 2,991,580 2,996,179 2,995,278

3.68 3.68 3.67 3.67

28. TIER 1 SUKUK

29. DIVIDEND

Weighted-Average number of shares outstanding (in

thousands)

These Sukuks are perpetual securities in respect of which there is no fixed redemption dates and represents an undivided

ownership interest of the Sukuk-holders in the Sukuk assets, with each Sakk constituting an unsecured, conditional and

subordinated obligation of the Bank classified under equity. However, the Bank shall have the exclusive right to redeem or

call the Sukuks in a specific period of time, subject to the terms and conditions stipulated in the Sukuk Agreement.

The applicable profit rate on the Sukuks is payable quarterly in arrears on each periodic distribution date, except upon the

occurrence of a non payment event or non-payment election by the Bank, whereby the Bank may at its sole discretion (subject

to certain terms and conditions) elect not to make any distributions. Such non-payment event or non-payment election are not

considered to be events of default and the amounts not paid thereof shall not be cumulative or compound with any future

distributions.

Basic EPS Diluted EPS─────────────── ───────────────

During 2020, the Bank through a Shariah compliant arrangement ("the arrangement") issued additional Tier 1 Sukuk (the

"Sukuk"), amounting to SAR 4.2 billion. Further, the Bank also exercised the call option on its existing Tier 1 sukuk

amounting to SAR 1 billion. These arrangements were approved by the board of directors of the Bank and regulatory

authorities.

Additionally, subsequent to the year end, the Bank has completed the issuance of additional cross border Tier 1 Sukuk

denominated in US Dollars, amounting to SِAR 4.69 billion.

Details of Basic and diluted earnings per share are as follows:

On 25 December 2019, the Board of Directors has recommended the distribution of final dividend of SAR 3,600 million

(SAR 1.20 per share) and accordingly, was paid in full during April 2020.

On 10 April 2019, the General Assembly approved the distribution of final dividend of SAR 3,293 million (SAR 1.10 per

share) and accordingly, was paid in full during April 2019.

On 28 July 2019, the Board of Directors approved the distribution of interim dividend of SAR 3,300 million (SAR 1.10 per

share) and accordingly, was paid in full during August 2019.

Diluted earnings per share for the years ended 31 December 2020 and 31 December 2019 is calculated by dividing the fully

diluted net income attributable to equity holders of the Bank for the year by the weighted average number of outstanding

shares. The diluted earning per share is adjusted with the impact of the employees' share based payment plan.

Earnings per share (in SAR)

Basic earnings per share for the years ended 31 December 2020 and 31 December 2019 is calculated by dividing the net

income attributable to common equity holders of the Bank (adjusted for Tier 1 sukuk costs) for the period by the weighted

average number of shares outstanding during the period.

______________________________________________________________________________________________________

65





30. CASH AND CASH EQUIVALENTS

2020 2019

SAR '000 SAR '000

33,778,319 25,653,256

Due from banks and other financial institutions with original maturity of three months or less 8,113,501 7,021,487

─────── ───────41,891,820 32,674,743

═══════ ═══════

31. OPERATING SEGMENTS

Retail

Corporate

Transactions between the operating segments are recorded as per the Bank and its subsidiaries' transfer pricing policy.

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses,

including revenues and expenses that relate to transactions with any of the Group's other components, whose operating results are reviewed

regularly by the Group's management.

Capital Market Provides wealth management, asset management, investment banking and shares brokerage

services (local, regional and international).

Cash and cash equivalents included in the consolidated statement of cash flows comprise the following:

Total

The Group has five reportable segments, as described below, which are the Group's strategic divisions. The strategic divisions offer different

products and services, and are managed separately based on the Group's management and internal reporting structure.

Treasury Provides a full range of treasury and correspondent banking products and services, including

money market and foreign exchange, to the Group’s clients, in addition to carrying out

investment and trading activities (local and international) and managing liquidity risk, market

risk and credit risk (related to investments).

Provides banking services, including lending and current accounts in addition to products in

compliance with Shariah rules which are supervised by the independent Shariah Board, to

individuals and private banking customers.

Provides banking services including all conventional credit-related products and financing

products in compliance with Shariah rules to small sized businesses, medium and large

establishments and companies.

Cash and balances with SAMA excluding statutory deposit (note 4)

International Comprises banking services provided outside Saudi Arabia including TFKB.

The supports and Head Office expenses are allocated to segments using activity-based costing.

___________________________________________________________________________________________________________________

66





31. OPERATING SEGMENTS (continued)

Retail Corporate Treasury

Capital

Market International Total

204,641,952 139,448,073 211,401,228 3,165,814 40,788,931 599,445,998

248,452,914 142,681,923 90,551,866 415,227 37,129,087 519,231,017

237,363,925 140,539,058 8,709,339 4,210 29,802,189 416,418,721

8,872,544 4,934,069 4,839,385 1,137,046 1,674,888 21,457,932

1,157,011 (849,988) (230,604) (4,019) (72,400) -

10,029,554 4,084,081 4,608,781 1,133,028 1,602,488 21,457,932

9,480,070 3,645,854 2,280,580 18,833 1,261,312 16,686,649

500,907 439,684 93,046 1,083,977 142,026 2,259,640

4,227,747 2,380,717 363,402 316,559 1,159,414 8,447,839

626,866 89,265 65,852 19,896 98,640 900,519

58,417 1,437,735 14,212 - 440,523 1,950,887

(36,844) (24,514) (47,716) - 32,304 (76,770)

5,764,967 1,678,848 4,197,662 816,468 475,378 12,933,323

2019 Retail Corporate Treasury

Capital


154,249,478 132,099,977 185,601,239 2,090,983 32,777,069 506,818,746

221,023,704 109,249,057 77,990,192 365,403 28,847,541 437,475,897

209,904,859 107,423,978 10,449,207 3,423 25,607,848 353,389,315

7,775,407 6,842,954 3,616,913 786,908 1,552,498 20,574,680

1,932,337 (2,131,932) 291,317 (123) (91,599) -

9,707,744 4,711,022 3,908,230 786,785 1,460,899 20,574,680

8,960,001 4,210,000 1,970,208 18,221 1,224,023 16,382,453

443,404 501,303 83,703 715,112 176,216 1,919,738

4,378,584 1,422,090 388,451 327,663 1,201,761 7,718,549

586,856 90,475 60,327 19,084 109,193 865,935

449,121 552,170 (56,387) - 475,026 1,419,930

68,657 (16,753) (23,201) 198 33,546 62,447

5,397,818 3,272,179 3,496,577 459,320 292,684 12,918,578

- Net impairment charge for expected

credit losses

Total assets

Total operating expenses

Total operating income from external

customers

of which:

(31.1) The Group’s total assets and liabilities at year end, its operating income and expenses (total and main items) and net income for the year, by

business segments, are as follows:

Total assets

Total liabilities

2020

(SAR '000)

- Customers' deposits

of which:

- Depreciation/amortisation of property,

equipment, software and ROU assets

-Intersegment operating income (expense)

Total operating income

of which:



Net income for the period before Zakat and

income tax

(SAR '000)

Other non-operating (expenses)/income, net

Total liabilities

- Customers' deposits

Total operating income from external

customers

-Intersegment operating income (expense)


of which:



Total operating expenses

- Depreciation/amortisation of property,

equipment, software and ROU assets

- Net impairment charge (reversal) for expected

credit losses

Other non-operating (expenses)/income, net

Net income for the period before Zakat and

income tax

___________________________________________________________________________________________________________________

67





31. OPERATING SEGMENTS (continued)


Capital


175,394,455 132,693,694 176,143,610 822,161 28,617,614 513,671,534

1,021,655 23,323,489 6,135,323 - 2,575,636 33,056,103

- - 25,590,261 - 155,779 25,746,040


Capital


123,714,593 128,777,964 153,333,218 474,262 25,853,697 432,153,734

706,697 23,124,263 7,452,315 - 2,919,577 34,202,852

- - 15,920,707 - 7,461 15,928,168

32. COLLATERAL AND OFFSETTING

(a)

Carrying

amount

Fair

value

Carrying

amount

Fair

value

19,513,081 19,513,081 29,374,177 29,374,177

5,145,407 5,516,630 10,733,238 10,987,799

──────── ─────── ──────── ───────Total 24,658,488 25,029,711 40,107,415 40,361,976

════════ ════════ ════════ ═══════

(a)

(b)

(c)

(d)

(e)

Derivatives (credit equivalent)

The credit exposure of assets as per the consolidated statement of financial position comprises the carrying value of due from banks and other

financial institutions, investments subject to credit risk, financing and advances, positive fair value of derivatives, other receivables and refundable

deposits.

Statement of financial position assets

Statement of financial position assets

Commitments and contingencies

(credit equivalent)

20192020

(31.2) The Group's credit risk exposure, by business segments, is as follows:

2020

SAR '000

Collateral usually is not held against investment securities, and no such collateral was held at 31 December 2020 and 31 December 2019.

For details of margin deposits held for the irrevocable commitments and contingencies, please refer note 14 and for details of margin deposits

against derivatives and repos, (refer note 11.1).

Securities pledged with the Group in respect of reverse repo transactions comprise of SAR 936 million (2019: SAR 939 million). The Group is

allowed to sell or repledge these securities in the event of default by the counterparty.

All significant financial assets and liabilities where the Group has a legal enforceable right and intention to settle on a net basis have been offset and

presented net in these consolidated financial statements.

Derivatives (credit equivalent)

Investments held at amortised cost

The Bank has placed a margin deposit of SAR 1,824 million (2019: SAR 591 million) as an additional security for these repo transactions.

The credit equivalent of commitments and contingencies and derivatives is calculated according to SAMA’s prescribed methodology.

Following are the details of collaterals held/received by the Group and offsetting carried out as at 31 December 2020:

The Bank conducts Repo transactions under the terms that are usually based on the applicable GMRA (Global Master Repurchase Agreement)

collateral guidelines. Assets sold with a simultaneous commitment to repurchase at a specified future date (repos) continue to be recognized in the

consolidated statement of financial position as the Group retains substantially all the risks and rewards of ownership. These assets continue to be

measured in accordance with related accounting policies for investments held at FVIS, held at FVOCI and investments held at amortised cost. The

carrying amount and fair value of securities pledged under agreement to repurchase (repo) are as follows:

Held at FVOCI

SAR '000SAR '000


(credit equivalent)

2019

SAR '000

___________________________________________________________________________________________________________________

68




33. CREDIT RISK

The debt securities included in investments are mainly sovereign risk and high-grade securities. Analysis of investments by

counterparty is provided in note (6.6). For details of the composition of the financing and advances refer to note (7.4). Information

on credit risk relating to derivative instruments is provided in note (12) and for commitments and contingencies in note (20). The

information on the Group's total maximum credit exposure is given in note (33.1).

Each individual corporate borrower is rated based on an internally developed debt rating model that evaluates risk based on

financial, qualitative and industry specific inputs. The associated loss estimate norms for each grade have been developed based on

the Group’s experience. These risk ratings are reviewed on a regular basis.

The Group in the ordinary course of lending activities holds collaterals as security to mitigate credit risk in financing and advances.

These collaterals mostly include time and other cash deposits, financial guarantees from other banks, local and international

equities, real estate and other fixed assets. The collaterals are held mainly against commercial and individual loans and are

managed against relevant exposures at their net realisable values. The Group holds real estate collateral against registered mortgage

as a collateral financial instruments such as financing and advances and customers' deposits are shown gross on the consolidated

statement of financial position and no offsetting has been done.

The Group manages exposure to credit risk, which is the risk that one party to a financial instrument or transaction will fail to

discharge an obligation and will cause the other party to incur a financial loss. Credit exposures arise principally in credit-related

risk that is embedded in financing and advances and investments. There is also credit risk in off-statement of financial position

financial instruments, such as trade-finance related products, derivatives and financing commitments.

For financing and advances and off-statement of financial position financing to borrowers to borrowers, the Group assesses the

probability of default of counterparties using internal rating models. For investments, due from banks and other financial

institutions and off-statement of financial position financial instruments held with international counterparties, the Group uses

external ratings by the major rating agencies.

The Group attempts to control credit risk by monitoring credit exposures, limiting transactions with specific counterparties, and

continually assessing the creditworthiness of counterparties. The Group’s risk management policies are designed to identify risks

and to set appropriate risk limits and to monitor the risks and adherence to limits. Actual exposures against limits are monitored on

a daily basis.

The Group manages the credit exposure relating to its trading activities by monitoring credit limits, entering into master netting

agreements and collateral arrangements with counterparties in appropriate circumstances, and limiting the duration of exposure. In

certain cases, the Group may also close out transactions or assign them to other counterparties to mitigate credit risk. The Group’s

credit risk for derivatives represents the potential cost to replace the derivative contracts if counterparties fail to fulfill their

obligation and the Group assesses counterparties using the same techniques as for its financing activities in order to control the

level of credit risk taken.

Concentrations of credit risk may arise in case of sizeable exposure to a single obligor or when a number of counterparties are

engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would

cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions.

Concentrations of credit risk indicate the relative sensitivity of the Group’s performance to developments affecting a particular

customer, industry or geographical location.

___________________________________________________________________________________________________________

69





33. CREDIT RISK (continued)

2020 2019

SAR '000 SAR '000

13,636,822 16,565,294

133,196,450 123,571,525

346,708,138 281,843,332

12,232,028 7,807,805

─────── ───────

Total assets 505,773,438 429,787,956

─────── ───────

48,475,245 50,439,228

7,898,096 5,276,039

─────── ───────

Total maximum credit exposure 562,146,779 485,503,223

═══════ ═══════

The Group also manages its credit risk exposure through the diversification of financing activities to ensure that there is no

undue concentration of risks with individuals or groups of customers in specific locations or businesses. It also takes

security when appropriate. The Group also seeks additional collateral from the counterparty as soon as impairment

indicators are noticed for the relevant financing and advances. The Group monitors the market value of collateral

periodically and requests additional collateral in accordance with the underlying agreement and Group's policy.

(33.1) Maximum credit exposure

Maximum exposure to credit risk without taking into account any collateral and other credit enhancements is as follows:

Contingent liabilities and commitments, net (notes 16 and 20)

Derivatives - positive fair value, net (note 12)

Other assets - margin deposits against derivatives and repos (note 11.1)

Assets

Due from banks and other financial institutions (note 5)

Investments (note 33.2 (a))

Financing and advances, net (note 7.1)

________________________________________________________________________________________________________

70






(33.2) Financial Risk Management

a. Credit quality analysis

2020 Stage 1 Stage 2 Stage 3 Total

Investment grade 6,100,134 - - 6,100,134

Non-investment grade 6,317,847 - - 6,317,847

Unrated 1,222,279 - - 1,222,279 ──────── ──────── ──────── ────────

Gross carrying amount 13,640,260 - - 13,640,260 ──────── ──────── ──────── ────────


Investment Grade 55,944,408 2,676 - 55,947,084

Corporate 42,967,428 - - 42,967,428

International 4,153,250 2,676 - 4,155,926

Others 8,823,730 - - 8,823,730

Non-investment Grade 100,182,214 15,507,299 - 115,689,513

Retail 988,294 10,462 - 998,756

Corporate 78,652,503 12,952,440 - 91,604,943

International 12,620,846 2,077,991 - 14,698,837

Others 7,920,571 466,406 - 8,386,977

Unrated 175,443,350 2,291,133 - 177,734,483

Retail 171,414,332 2,232,292 - 173,646,624

Corporate 14,385 - - 14,385

International 3,290,979 58,841 - 3,349,820

Others 723,654 - - 723,654

Individually impaired - - 6,128,435 6,128,435

Retail - - 585,384 585,384

Corporate - - 4,205,720 4,205,720

International - - 1,337,331 1,337,331 ──────── ──────── ──────── ────────

Gross carrying amount 331,569,972 17,801,108 6,128,435 355,499,515

──────── ──────── ──────── ────────

Debt investment securities at amortised cost

Saudi Government Bonds, Sukuk and Treasury Bills 50,717,114 - - 50,717,114

Investment Grade 18,956,835 1,217,187 - 20,174,022

Non-investment Grade 3,568,541 162,728 - 3,731,269 ─────── ─────── ─────── ───────

Gross carrying amount 73,242,490 1,379,915 - 74,622,405 ─────── ─────── ─────── ───────

Debt investment securities at FVOCI


Investment Grade 25,911,733 1,148,661 - 27,060,394



Commitment and contingencies


Non-investment Grade 29,134,396 3,186,248 889,225 33,209,869

Unrated 1,468,166 1,412 - 1,469,578 ─────── ─────── ─────── ───────

Total 48,283,351 3,216,915 889,225 52,389,491 ═══════ ═══════ ═══════ ═══════

Gross carrying amount

Due from Bank and Other financial institutions

SAR'000

• Investment Grade is composed of Very Strong Credit Quality (AAA to BBB-)

• Non-Investment Grade is composed of: Good, Satisfactory and Special Mention Credit Quality (BB+ to C)

(i) The following table sets out information about the credit quality of financial assets measured at amortised cost and FVOCI debt

investments. Unless specifically indicated, for financial assets, the amounts in the table represent gross carrying amounts. For

financing commitments and financial guarantee contracts, the amounts in the table represent the amounts committed or guaranteed,

respectively.

______________________________________________________________________________________________71






(33.2) Financial Risk Management (continued)

a. Credit quality analysis (continued)

2019 Stage 1 Stage 2 Stage 3 Total

Due from Bank and Other financial institutions

Investment grade 11,236,035 - - 11,236,035

Non-investment grade 4,423,819 - - 4,423,819

Unrated 909,623 - - 909,623 ──────── ──────── ──────── ────────

Gross carrying amount 16,569,477 - - 16,569,477 ──────── ──────── ──────── ────────



Corporate 49,136,488 - - 49,136,488

International 1,812,682 4,621 - 1,817,303

Others 1,741,907 - - 1,741,907

Non-investment Grade 89,466,486 15,129,205 - 104,595,691

Retail 513,434 - - 513,434

Corporate 70,719,931 9,968,278 - 80,688,209

International 11,962,226 2,205,540 - 14,167,766

Others 6,270,895 2,955,387 - 9,226,282

Unrated 124,702,341 1,882,158 - 126,584,499

Retail 121,754,731 1,442,585 - 123,197,316

Corporate - - - -

International 2,460,306 439,573 - 2,899,879

Others 487,304 - - 487,304

Individually impaired - - 5,329,396 5,329,396

Retail - - 599,336 599,336

Corporate - - 3,051,591 3,051,591

International - - 1,678,469 1,678,469 ──────── ──────── ──────── ────────

Gross carrying amount 266,859,904 17,015,984 5,329,396 289,205,284 ──────── ──────── ──────── ────────

Debt investment securities at amortised cost



Non-investment Grade 1,887,573 1,465,785 - 3,353,358 ─────── ─────── ─────── ───────


Debt investment securities at FVOCI




Gross carrying amount 57,576,631 890,196 - 58,466,827 ─────── ─────── ─────── ───────



Non-investment Grade 28,226,110 2,652,108 851,444 31,729,662

Unrated 1,704,425 39,321 - 1,743,746 ─────── ─────── ─────── ───────

Total 50,285,493 2,698,652 851,444 53,835,589 ═══════ ═══════ ═══════ ═══════

Gross carrying amount

SAR'000

______________________________________________________________________________________________72







a. Credit quality analysis (continued)

(ii) The table below details the aging of the performing financing and advances:

2020

Consumer &


Neither past due nor impaired 170,767,104 133,021,559 20,065,075 17,934,360 341,788,098

─────── ─────── ─────── ─────── ───────

Past due but not impaired

Less than 30 days 2,582,161 321,251 132,680 - 3,036,092

30-59 days 864,091 227,667 42,603 - 1,134,361

60-89 days 432,026 1,016,278 1,964,225 - 3,412,529

─────── ──────── ─────── ──────── ────────Total past due not impaired 3,878,278 1,565,196 2,139,508 - 7,582,982

─────── ──────── ─────── ──────── ────────

Total performing financing and advances 174,645,382 134,586,755 22,204,583 17,934,360 349,371,080

═══════ ════════ ═══════ ════════ ════════

2019

Consumer &


Neither past due nor impaired 119,649,043 127,282,547 16,196,293 11,455,493 274,583,376

─────── ─────── ─────── ─────── ───────

Past due but not impaired

Less than 30 days 2,619,181 1,251,232 365,346 - 4,235,759

30-59 days 944,140 692,099 163,875 - 1,800,114

60-89 days 498,386 598,819 2,159,434 - 3,256,639

─────── ──────── ─────── ──────── ────────Total past due not impaired 4,061,707 2,542,150 2,688,655 - 9,292,512

─────── ──────── ─────── ──────── ────────

Total performing financing and advances 123,710,750 129,824,697 18,884,948 11,455,493 283,875,888

═══════ ════════ ═══════ ════════ ════════

SAR '000


SAR '000


_____________________________________________________________________________________________________

73







b. Amounts arising from ECL – significant increase in credit risk

Consideration due to COVID-19:

i) Generating the term structure of PD

• Actual and expected significant changes in the

political, regulatory and technological environment of

the borrower or in its business activities.

This analysis includes the identification and calibration of relationships between changes in default rates and macro-

economic factors including GDP growth, benchmark interest rates, unemployment ,etc.

Credit risk grades are a primary input into the determination of the term structure of PD for exposures. The Group collects

performance and default information about its credit risk exposures analyzed by type of product and borrower as well as by

credit risk grading. For some portfolios, information obtained from external credit reference agencies is also used.

The Group employs statistical models to analyze the data collected and generate estimates of the remaining lifetime PD of

exposures and how these are expected to change as a result of the passage of time.

When determining whether the risk of default on a financial instrument has increased significantly since initial recognition,

the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This

includes both quantitative and qualitative information and analysis, based on the Group's historical experience and expert

credit assessment and including forward-looking information.

The objective of the assessment is to identify whether a significant increase in credit risk has occurred for an exposure

based on approved stages of criteria.

The Group allocates each exposure to a credit risk grade based on a variety of data that is determined to be predictive of the

risk of default and applying experienced credit judgment. Credit risk grades are defined using qualitative and quantitative

factors that are indicative of risk of default. These factors vary depending on the nature of the exposure and the type of

borrower.

• Data from credit reference agencies, press articles,

changes in external credit ratings.

Corporate exposures Retail exposures All exposures

• Information obtained during periodic review of

customer files – e.g. audited financial statements,

management accounts, budgets and projections.

Examples of areas of particular focus are: gross profit

margins, financial leverage ratios, debt service

coverage, compliance with covenants, quality

management, and senior management changes.

• Internally collected data and

customer behavior – e.g.

utilization of credit card

facilities.

• Payment record – this includes

overdue status as well as a range

of variables about payment ratios.

• Utilization of the granted limit

• Requests for and granting of

forbearance.

• Existing and forecasted changes

in business, financial and

economic conditions.

In response to the impacts of COVID-19, various support programmes have been offered to the customers either voluntarily

by the Bank or on account of SAMA initiatives, such as customers eligible under Deferred Payments Program (refer to note

43 for further details). The exercise of the deferment option by a customer, in its own, is not considered by the Bank as

triggering SICR and as a consequence impact on ECL for those customers were determined based on their existing staging.

However, as part of the Bank’s credit evaluation process especially given the current economic situation due to after effects

of lock down, the Bank obtained further information from the customers to understand their financial position and ability to

repay the amounts and in case where indicators of significant deterioration were noted, the customers’ credit ratings and

accordingly exposure staging were adjusted, where applicable.

Credit risk grades are defined and calibrated such that the risk of default occurring increases exponentially as the credit risk

deteriorates so, for example, the difference in risk of default between credit risk grades 1 and 2 is smaller than the

difference between credit risk grades 2 and 3.

Each corporate exposure is allocated to a credit risk grade at initial recognition based on available information about the

borrower. Exposures are subject to ongoing monitoring, which may result in an exposure being moved to a different credit

risk grade.

The monitoring of exposures involves use of the following data:

______________________________________________________________________________________________74







b. Amounts arising from ECL – significant increase in credit risk (continued)

(i) Generating the term structure of PD (continued)

(ii) Determining whether credit risk has increased significantly

(iii) Modified financial assets

When the terms of a financial asset are modified and the modification does not result in de-recognition, the determination

of whether the asset's credit risk has increased significantly is completed on the basis of the approved staging criteria.

For financial assets modified as part of the Group's forbearance policy, the estimate of PD reflects whether the modification

has improved or restored the Group's ability to collect special commission income and principal and the Group's previous

experience of similar forbearance action. As part of this process, the Group evaluates the borrower's payment performance

against the modified contractual terms and considers various behavioral indicators.

The forbearance activities did not have any material impact on the consolidated financial statements of the Bank for the

year ended 31 December 2020.

Based on inputs from Group's Economics Department and consideration of a variety of external actual and forecasted

information, the Bank formulates a 'base case' view of the future direction of relevant economic variables as well as a

representative range of other possible forecasted scenarios (see discussion below on incorporation of forward-looking

information). The Bank then uses these forecasts to adjust its estimates of PDs.

As a backstop, the Group considers that a significant increase in credit risk occurs no later than when an asset is more than

30 days past due unless reasonable evidences are present to prove otherwise. Days past due are determined by counting the

number of days since the earliest elapsed due date in respect of which full payment has not been received. Due dates are

determined without considering any grace period that might be available to the borrower.

Using its expert credit judgment and, where possible, relevant historical experience, the Group may determine that an

exposure has undergone a significant increase in credit risk based on particular qualitative indicators that it considers are

indicative of such and whose effect may not otherwise be fully reflected in its quantitative analysis on a timely basis.

The criteria for determining whether there is a significant increase in credit risk (SICR) since initial recognition, include

quantitative changes in PDs and various qualitative factors, including a backstop based on delinquency.

Moreover, the bank also considers information about guarantees or other credit enhancements in assessing changes in credit

risk, as well as the impact of the changes in nature, type and value of such collaterals, on the ability and/or economic

incentive of a borrower to repay. As such, where available and applicable, the Bank has duly considered the same.

• there is no unwarranted volatility in loss allowance from transfers between 12-month PD (stage 1) and lifetime PD

(stage 2).

The Group renegotiates financing and advances to customers in financial difficulties (referred to as 'forbearance activities')

to maximize collection opportunities and minimize the risk of default. Under the Group's forbearance policy, Financing and

advances forbearance is granted on a selective basis if the debtor is currently in default on its debt or if there is a high risk

of default, there is evidence that the debtor made all reasonable efforts to pay under the original contractual terms and the

debtor is expected to be able to meet the revised terms.

The revised terms usually include extending the maturity, changing the timing of special commission payments and

amending the terms of financing and advances covenants . Both retail and corporate financing and advances are subject to

the forbearance policy.

The contractual terms of financing and advances may be modified for a number of reasons, including changing market

conditions, customer retention and other factors not related to a current or potential credit deterioration of the customer. An

existing financing and advances whose terms have been modified may be derecognised and the renegotiated Financing and

advances recognised as a new financing and advances at fair value in accordance with the accounting policy.

The Group monitors the effectiveness of the criteria used to identify significant increases in credit risk by regular reviews to

confirm that:

• the criteria are capable of identifying significant increases in credit risk before an exposure is in default; and

______________________________________________________________________________________________75







b. Amounts arising from ECL – Significant increase in credit risk (continued)

(iv) Definition of ‘Default’

(v) Incorporation of forward looking information

(vi) Measurement of ECL

A default is considered to have occurred with regard to a particular obligor when either or both of the two following events

have taken place:

These parameters are generally derived from internally developed statistical models and other historical data. They are

adjusted to reflect forward-looking information as described above.

• The obligor is past due for 90 days or more on any material credit obligations to the Group including principal

instalments, interest payments and fees. The materiality threshold for recognition of default is 5% of the total

outstanding credit obligations of the client.

(a) probability of default (PD);

• The Group considers that the obligor is unlikely to pay its credit obligations to the bank in full, without recourse by

the bank to actions such as realizing security (if any).

The definition of default largely aligns with that applied by the Group for regulatory capital purposes.

The Group incorporates forward-looking information into both its assessment of whether the credit risk of an instrument

has increased significantly since its initial recognition and its measurement of ECL. Based on advice from the Group's

Economics Department experts and consideration of a variety of external actual and forecasted information, the Group

formulates a 'base case' view of the future direction of relevant economic variables as well as a representative range of other

possible forecasted scenarios. This process involves developing two or more additional economic scenarios and considering

the relative probabilities of each outcome. External information includes economic data and forecasts published by

governmental bodies and monetary authorities in the Kingdom and selected private sector and academic forecasters.

The Group has identified and documented key drivers of credit risk and credit losses for each portfolio of financial

instruments and, using an analysis of historical data, has estimated relationships between macro-economic variables and

credit risk and credit losses.

Predicted relationships between the key indicators and default and loss rates on various portfolios of financial assets have

been developed based on analyzing historical data over the past 10 years. Moreover, a sensitivity analysis has been

conducted on the macro-economic impact. in order to assess the change in ECL. A shift of 10% would result in a shift of 5

basis points in ECL.

The key inputs into the measurement of ECL are the term structure of the following variables:

(b) loss given default (LGD);

(c) exposure at default (EAD).

______________________________________________________________________________________________76







b. Amounts arising from ECL – Significant increase in credit risk (continued)

(vi) Measurement of ECL (continued)

c. Collateral

The Group measures ECL considering the risk of default over the maximum contractual period (including any borrower's

extension options) over which it is exposed to credit risk, even if, for risk management purposes, the Group considers a

longer period. The maximum contractual period extends to the date at which the Group has the right to require repayment

of an advance or terminate a Financing and advances commitment or guarantee.

However, for retail overdrafts and credit card facilities that include both a Financing and advances and an undrawn

commitment component, the Group measures ECL over a period longer than the maximum contractual period if the Group's

contractual ability to demand repayment and cancel the undrawn commitment does not limit the Group's exposure to credit

losses to the contractual notice period. These facilities do not have a fixed term or repayment structure and are managed on

a collective basis. The Group can cancel them with immediate effect but this contractual right is not enforced in the normal

day-to-day management but only when the Group becomes aware of an increase in credit risk at the facility level. This

longer period is estimated taking into account the credit risk management actions that the Group expects to take and that

serve to mitigate ECL.

The Group uses a wide variety of techniques to reduce credit risk on its lending; one important credit risk mitigation

technique is accepting guarantees and collaterals with appropriate coverage. The Group ensures that the collateral held is

sufficiently liquid, legally effective and regularly valued. The method and frequency of revaluation depends on the nature of

the collateral involved. Types of acceptable collateral to the Group include time and other cash deposits, financial

guarantees, equities, real estate, other fixed assets and salary assignment in case of individuals. The collateral is held mainly

against commercial and individual financings and is managed against relevant exposures at its net realizable values. The

Group monitors the market value of collaterals, requests additional collaterals in accordance with the underlying

agreements. Whenever possible, finances are secured by acceptable forms of collateral in order to mitigate credit risk.

Group’s policy is to lend against the cash flow of an operating commercial entity as a first way and primary source of

repayment. Collaterals provided by the customer are generally only considered as a secondary source for repayment.

PD estimates are estimates at a certain date, which are calculated, based on statistical rating models, and assessed using

rating tools tailored to the various categories of counterparties and exposures. These statistical models are based on

internally and externally compiled data comprising both quantitative and qualitative factors. Where it is available, market

data may also be used to derive the PD for large corporate counterparties. If a counterparty or exposure migrates between

ratings classes, then this will lead to a change in the estimate of the associated PD. PDs are estimated considering the

contractual maturities of exposures and estimated prepayment rates.

LGD is the magnitude of the likely loss if there is a default. The Group estimates LGD parameters based on the history of

recovery rates of claims against defaulted counterparties. The LGD models consider the structure, collateral, seniority of the

claim, counterparty industry and recovery costs of any collateral that is integral to the financial asset. For Financing and

advances secured by retail property, LTV (Lending to Value) ratios are a key parameter in determining LGD.

EAD represents the expected exposure in the event of a default. The Group derives the EAD from the current exposure to

the counterparty and potential changes to the current amount allowed under the contract including amortization. The EAD

of a financial asset is its gross carrying amount. For lending commitments and financial guarantees, the EAD includes the

amount drawn, as well as potential future amounts that may be drawn under the contract, which are estimated based on

historical observations.

______________________________________________________________________________________________77





34. MARKET RISK

(34.1)

(i)

(ii)

(iii)

(iv)

(v)

Market risk - Trading book

Market risk is the risk that changes in market prices, such as special commission rate, credit spreads (not relating to changes

in the obligor's / issuer's credit standing), equity prices and foreign exchange rates, will affect the Group's income or the

value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk

exposures within acceptable parameters, while optimising the return on risk.

The Group separates its exposure to market risk between trading and banking books. Trading book is mainly held by the

Treasury division and includes positions arising from market making and proprietary position taking, together with financial

assets and liabilities that are managed on a fair value basis.

Overall authority for market risk is vested to the Board of Directors. The Risk Group is responsible for the development of

detailed risk management policies (subject to review and approval by the Board of Directors) and for the day-to-day review

of their implementation.

The principal tool used to measure and control market risk exposure within the Group's trading book is Value at Risk (VaR).

The VaR of a trading position is the estimated loss that will arise on the position over a specified period of time (holding

period) from an adverse market movement with a specified probability (confidence level). The VaR model used by the Group

is based upon a 99 percent confidence level and assumes a 1-day holding period, except for Fair Value through Income

Statement (FVIS) investments which are computed over a 3-month holding period (i.e., VaR is measured daily, except for

VaR on FVIS investments which are computed on a monthly basis), to facilitate the comparison with the trading income

(loss) which is also computed and reported on a daily basis. The model computes volatility and correlations using relevant

historical market data.

The Group uses VaR limits for total market risk embedded in its trading activities including derivatives related to foreign

exchange and special commission rate. The overall structure of VaR limits is subject to review and approval by the Board of

Directors. VaR limits are allocated to the trading book. The daily reports of utilisation of VaR limits are submitted to the

senior management of the Group. In addition, regular summaries about various risk measures are submitted to the Risk

Committee of the Board.

Although VaR is an important tool for measuring market risk, the assumptions on which the model is based gives rise to some

limitations, including the following:

A 1-day holding period assumes that it is possible to hedge or dispose of positions within one day horizon. This is

considered to be a realistic assumption in most of the cases but may not be the case in situations in which there is

severe market illiquidity for a prolonged period.

A 99% confidence level does not reflect losses that may occur beyond this level. Even within the model used there is

a 1% probability that losses could exceed the VaR.

VaR is calculated on an end-of-day basis and does not reflect exposures that may arise on positions during the

trading day.

The use of historical data as a basis for determining the possible range of future outcomes may not always cover all

possible scenarios, especially those of an exceptional nature.

The VaR measure is dependent upon the Group's position and the volatility of market prices. The VaR of an

unchanged position reduces if the market price volatility declines and vice versa.

The limitations of the VaR methodology are recognised by supplementing VaR limits with other position and sensitivity limit

structures, including limits to address potential concentration risks within each trading book. In addition, the Group uses

stress tests to model the financial impact of exceptional market scenarios on individual trading book and the Group's overall

trading position.

________________________________________________________________________________________________________

78





34. MARKET RISK (continued)

(34.1)

2020

Foreign

exchange

risk

Special

commission

risk

Equity

Price

Risk

Overall

risk

3,517 6,735 13,693 23,945

4,536 6,794 10,516 21,846

2019

Foreign

exchange

risk

Special

commission

risk

Equity

Price

Risk

Overall

risk

1,416 9,860 10,803 22,079

1,750 8,236 1,618 11,604

(34.2)

Market risk - Trading book (continued)

The table below shows the VaR arises from special commission rate, foreign currency exposure and equity exposure held at

FVIS portfolio:

SAR '000

Held at FVIS

Average VaR

End of year VaR

SAR '000

Held at FVIS

(34.2.1) Special commission rate risk

Special commission rate risk arises from the possibility that changes in special commission rates will affect future cash

flows or the fair values of financial instruments. The Group's Assets Liabilities Committee (ALCO) has established limits

on the special commission rate gap. Positions are regularly monitored and reported on a monthly basis to ALCO and

hedging strategies are used to ensure positions are maintained within the established limits. In case of stressed market

conditions, the asset-liability gap may be monitored more frequently.

The following table depicts the sensitivity due to reasonably possible changes in special commission rates, with other

variables held constant, on the Group’s consolidated statement of income or equity. The sensitivity of the income is the

effect of the assumed changes in special commission rates on the net special commission income for one year, based on the

special commission bearing non-trading financial assets and financial liabilities held as at 31 December 2020, including the

effect of hedging instruments. The sensitivity of the equity is calculated by revaluing the fixed rate fair value through

income statement, including the effect of any associated hedges, as at 31 December 2020 for the effect of assumed changes

in special commission rates. The sensitivity of equity is analyzed by maturity of the assets or cash flow hedge swaps. All

significant banking book exposures are monitored and analyzed in currency concentrations and relevant sensitivities are

disclosed in local currency. The sensitivity analysis does not take account of actions by the Group that might be taken to

mitigate the effect of such changes.

Average VaR

Market risk - Banking book

Market risk on banking book positions mainly arises from the special commission rate, foreign currency exposures and

equity price changes.

End of year VaR

_____________________________________________________________________________________________________

79






2020

Increase /

decrease

in basis

points

Within 3

months

3-12

months

1-5

years

Over

5 years Total

Currency

SAR 10 162,989 - - 5,747 89,378 95,125

USD 10 8,598 40 968 27,845 87,158 116,011

2019

Increase /

decrease

in basis

points

Within 3

months

3-12

months

1-5

years

Over

5 years Total

Currency

SAR 10 145,152 - - 12,754 133,803 146,557

USD 10 18,235 82 1,118 26,105 101,862 129,167

(34.2) Market risk - Banking book (continued)

(34.2.1) Special commission rate risk (continued)

Sensitivity

of special

commission

income

Sensitivity

of special

commission

income

SAR '000

Sensitivity of equity (other reserves)

SAR '000

Sensitivity of equity (other reserves)

_____________________________________________________________________________________________________

80





(a) Special commission rate sensitivity of assets, liabilities and off-statement of financial position items

The table below summarizes the Group's exposure to special commission rate risks:

26,237,293 - - - 30,586,384 56,823,677

1,000,131 738,545 1,076,169 - 10,821,977 13,636,822

8,843,967 6,141,531 47,992,904 71,860,866 10,013,427 144,852,695

373,197 769,592 133,698 432,943 7,247,160 8,956,590

1,214,402 2,522,119 18,860,993 35,976,531 2,766,267 61,340,312

7,256,368 2,849,820 28,998,213 35,451,392 - 74,555,793

72,643,103 128,281,331 74,427,589 71,267,240 88,875 346,708,138

8,548,133 33,626,852 62,153,320 69,473,872 - 173,802,177

49,813,145 76,867,018 5,001,160 1,012,372 - 132,693,695

4,732,010 9,665,230 7,153,275 780,996 694 22,332,205

9,549,815 8,122,231 119,834 - 88,181 17,880,061

4,328,277 2,085,464 718,154 - 766,201 7,898,096

─────── ─────── ─────── ─────── ─────── ──────── Total financial assets 113,052,771 137,246,871 124,214,816 143,128,106 52,276,864 569,919,428

═══════ ═══════ ═══════ ═══════ ═══════ ════════

46,642,352 15,447,492 8,999,079 - 3,939,234 75,028,157

60,609,088 29,154,395 162,386 - 326,492,852 416,418,721

6,116,384 - - - 313,259,222 319,375,606

53,614,031 29,154,395 162,386 - - 82,930,812

878,673 - - - 13,233,630 14,112,303

720,771 682,308 - 369,611 - 1,772,690

5,016,782 3,651,434 701,156 - 375,071 9,744,443

─────── ─────── ─────── ─────── ─────── ──────── 112,988,993 48,935,629 9,862,621 369,611 330,807,157 502,964,011

═══════ ═══════ ═══════ ═══════ ═══════ ════════ 63,778 88,311,242 114,352,195 142,758,495 (278,530,293)

7,774,075 11,766,519 (6,328,619) (13,154,653) -

─────── ─────── ─────── ─────── ──────── 7,837,853 100,077,761 108,023,576 129,603,842 (278,530,293)

─────── ─────── ─────── ─────── ────────

7,837,853 107,915,614 215,939,190 345,543,032 67,012,739

═══════ ═══════ ═══════ ═══════ ════════

Off-statement of financial position gap

Total special commission rate sensitivity gap



- Consumer & Credit Card

- Corporate

- International

- Others

Positive fair value of derivatives, net

Liabilities

- Held at FVOCI

- Held at FVIS

- Investments held at amortised cost


Due to banks and other financial institutions

Customers' deposits

- Current and call accounts

- Time

- Others

Debt securities issued

Negative fair value of derivatives, net

Total financial liabilities

On-statement of financial position gap

The Group manages exposure to the effects of various risks associated with fluctuations in the prevailing levels of market special commission rates on its

consolidated financial position and cash flows. The table below summarizes the Group’s exposure to special commission rate risks. Included in the table are the

Group’s assets and liabilities at carrying amounts, categorized by the earlier of the contractual re-pricing or the maturity dates. The Group manages exposure to

special commission rate risk as a result of mismatches or gaps in the amounts of assets and liabilities and off-statement of financial position instruments that

mature or re-price in a given period. The Group manages this risk by matching the re-pricing of assets and liabilities through risk management strategies.

SAR '000

Total

Within 3

months

3-12

months

1-5

years

Over 5

years

Non-special

commission

bearing

Assets

Cash and balances with SAMA


Investments, net

2020

Cumulative special commission

rate sensitivity gap

__________________________________________________________________________________________________________

81





(a) Special commission rate sensitivity of assets, liabilities and off-statement of financial position items (continued)

15,942,001 - - - 29,440,208 45,382,209

4,656,899 1,869,745 969,095 - 9,069,555 16,565,294

34,622,875 16,391,204 35,410,767 38,154,905 9,496,821 134,076,572

1,084 934,748 164,985 - 7,249,613 8,350,430

7,575,997 8,447,851 14,287,882 28,155,097 2,247,208 60,714,035

27,045,794 7,008,605 20,957,900 9,999,808 - 65,012,107

78,012,871 100,957,982 63,823,608 38,550,724 498,147 281,843,332

8,113,455 23,008,983 55,386,281 36,133,682 9,681 122,652,082

57,356,620 66,467,113 2,434,646 1,994,586 - 128,252,965

5,444,380 7,813,994 5,841,994 422,456 1,175 19,523,999

7,098,416 3,667,892 160,687 - 487,291 11,414,286

2,685,611 1,505,747 486,073 16,294 582,314 5,276,039

─────── ─────── ─────── ─────── ─────── ──────── Total financial assets 135,920,257 120,724,678 100,689,543 76,721,923 49,087,045 483,143,446

═══════ ═══════ ═══════ ═══════ ═══════ ════════

52,434,192 5,955,437 81,600 - 3,714,815 62,186,044

73,390,071 21,870,625 1,365,603 - 256,763,016 353,389,315

6,130,837 - - - 244,569,300 250,700,137

66,787,201 21,870,625 1,365,603 - - 90,023,429

472,033 - - - 12,193,716 12,665,749

800,996 215,105 - - - 1,016,101

2,883,439 2,479,662 454,986 10,424 253,069 6,081,580

─────── ─────── ─────── ─────── ─────── ──────── 129,508,698 30,520,829 1,902,189 10,424 260,730,900 422,673,040

═══════ ═══════ ═══════ ═══════ ═══════ ════════ 6,411,559 90,203,849 98,787,354 76,711,499 (211,643,855)

6,656,420 868,227 (833,313) (6,678,164) -

─────── ─────── ─────── ─────── ──────── 13,067,979 91,072,076 97,954,041 70,033,335 (211,643,855)

─────── ─────── ─────── ─────── ────────

13,067,979 104,140,055 202,094,096 272,127,431 60,483,576

═══════ ═══════ ═══════ ═══════ ════════



SAR '000

2019

Within 3

months

3-12

months

1-5

years

Over 5

years

Non-special

commission

bearing Total

The off-statement of financial position gap represents the net notional amounts of derivative financial instruments, which are used to manage the special

commission rate risk.

Assets

- Held at FVIS

- Corporate

- International



Total financial liabilities

On-statement of financial position gap

Off-statement of financial position gap

Total special commission rate sensitivity gap

Cumulative special commission

rate sensitivity gap

- Others


Liabilities


Customers' deposits


- Time

- Others



Investments, net

- Held at FVOCI

- Investments held at amortised cost



__________________________________________________________________________________________________________

82






Currency

893,612 608,741

2,161,726 2,060,257

Currency

Increase/

decrease in

currency

rate in %

Effect on

profit

Effect on

equity

Increase/

decrease in

currency

rate in %

Effect on

profit

Effect on

equity

TRY 10% ± 24,398 ± 280,615 10% ±± 16,708 ± 307,053

Increase /

decrease

in market

prices %

Effect on

equity (other

reserves)

Increase /

decrease

in market

prices %

Effect on

equity (other

reserves)

10% 237,202 ± 10% 191,260

2020

SAR '000

Long (short)

2019

SAR '000

Long (short)


(34.2.2) Currency risk

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Group

manages exposure to the effects of fluctuations in prevailing foreign currency exchange rates on its consolidated financial position

and cash flows. The Board has set limits on positions by currency. Positions are monitored on a daily basis and hedging strategies

are used to ensure positions are maintained within established limits.

At the year end, the Group had the following significant net exposures denominated in foreign currencies:

2020

SAR '000

2019

SAR '000

The table below indicates the extent to which the Group was exposed to currency risk at 31 December 2020 on its significant foreign

currency positions. The analysis is performed for reasonably possible movements of the currency rate against the Saudi Riyal with

all other variables held constant, including the effect of hedging instruments, on the consolidated statement of income; the effect on

equity of foreign currencies other than Turkish Lira (TRY) is not significant. A negative amount in the table reflects a potential net

reduction in consolidated statement of income, while a positive amount reflects a net potential increase. The sensitivity analysis does

not take account of actions by the Group that might be taken to mitigate the effect of such changes.

US Dollar

TRY

A long position indicates that assets in a foreign currency are higher than the liabilities in the same currency; the opposite applies to

short position.

The effect on equity (other reserves) as a result of a change in the fair value of equity instruments quoted on Saudi Stock Exchange

(Tadawul) and held as FVOCI at 31 December 2020 and 31 December 2019 due to reasonably possible changes in the prices of these

quoted shares held by the Group, with all other variables held constant, is as follows:

(34.2.3) Equity price risk

Equity price risk is the risk that the fair value of equities decreases as a result of changes in the levels of equity index and the value

of individual stocks.

Impact of change in market prices

2020

SAR '000

2019

SAR '000

Market index - (Tadawul)

±±

___________________________________________________________________________________________________________

83





The Bank has established a committee to oversee NCB’s IBOR transition journey supported by working group. The committee is

updated on monthly basis on the overall progress of the project including key achievements. The transition project will include

changes to systems, processes and models, as well as managing related tax and accounting implications. Further, the Bank

currently anticipates that the areas of significant change will be amendments to the contractual terms of LIBOR-referenced

floating-rate debt, derivatives and update of hedge designations. Further, the project will also manage the timely and

comprehensive communication of the IBOR transition with the customers and assisting them in taking informed and timely

decision.

IBOR reforms exposes the Bank to various risk which are managed and monitored closely. Some of the key risks which the Bank

is exposed to include the following:

- Conduct risk arising on account of discussion with the client for repapering of existing contacts that extends beyond Dec 2021;

- Financial risk that may transpires at the time of transition to RFR’s; and

- Operational risk on account of changes in the systems, models and process.

The table below shows the Bank’s exposure at the year end to significant IBORs subject to reforms that are yet to transition to risk

free rates. These exposures will remain outstanding until the IBOR ceases and will therefore transition to the reference rate in

future, e.g., the table excludes exposures to IBOR that will expire before transition is required.

Non-Derivative

Financial Assets

Non-Derivative

Financial Liabilities

Derivatives

Nominal amount

(34.3) Interest rate benchmark reform

2020

SAR '000

LIBOR USD 26,866,112 5,137,500 140,727,683

LIBOR JPY - 1,080,000 1,080,000

Total 26,866,112 6,217,500 141,807,683

___________________________________________________________________________________________________________

84




35. LIQUIDITY RISK

(35.1)

Liquidity risk is the risk that the Group will be unable to meet its payment obligations when they fall due under normal and stress

circumstances. Liquidity risk can be caused by market disruptions or credit downgrades, which may cause certain sources of

funding to be less readily available. To mitigate this risk, management has diversified funding sources in addition to its core

deposit base, manages assets with liquidity in mind, maintaining an appropriate balance of cash, cash equivalents and readily

marketable securities and monitors future cash flows and liquidity on a daily basis. The Group has lines of credit in place that it

can access to meet liquidity needs.

In accordance with the Banking Control Law and the regulations issued by SAMA, the Bank maintains a statutory deposit with

SAMA of 7% of average demand deposits and 4% of average savings and time deposits. In addition to the statutory deposit, the

Bank also maintains liquid reserves of not less than 20% of the deposit liabilities, in the form of cash, Saudi Government Bonds or

assets which can be converted into cash within a period not exceeding 30 days.

The liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors relating to

both the market in general and specifically to the Group. One of these methods is to maintain limits on the ratio of liquid assets to

deposit liabilities, set to reflect market conditions. Liquid assets consist of cash, short-term bank deposits and liquid debt

securities available for immediate sale and Saudi Government Bonds excluding repos. Deposits liabilities include both customers

and Banks, excluding non-resident Bank deposits in foreign currency.

The table below summarises the maturity profile of the Group's financial liabilities at 31 December 2020 and 31 December 2019

based on contractual undiscounted repayment obligations; as special commission payments up to contractual maturity are included

in the table, totals do not match with the consolidated statement of financial position. The contractual maturities of liabilities have

been determined on the basis of the remaining period at the consolidated statement of financial position date to the contractual

maturity date and do not take into account the effective expected maturities as shown on note (35.2) below (Maturity analysis of

assets and liabilities for the expected maturities). Repayments which are subject to notice are treated as if notice were to be given

immediately. However, the Group expects that many customers will not request repayment on the earliest date the Group could be

required to pay and the table does not reflect the expected cash flows indicated by the Group's deposit retention history.

Analysis of financial liabilities by remaining contractual maturities

___________________________________________________________________________________________________________

85




35. LIQUIDITY RISK (continued)

(35.1)

2,787,788 40,290,640 15,813,326 16,619,599 1,694,573 77,205,926

341,081,203 52,646,991 29,193,405 1,495,861 24,852 424,442,312

319,435,217 - - - - 319,435,217

7,533,683 52,646,991 29,193,405 1,495,861 24,852 90,894,792

14,112,303 - - - - 14,112,303

- 738,301 1,190,912 - - 1,929,213

- 56,380,121 32,695,914 47,091,320 9,353,832 145,521,187

- 215,886 638,274 2,568,023 1,384,489 4,806,672

──────── ─────── ─────── ─────── ─────── ───────

343,868,991 150,271,939 79,531,831 67,774,803 12,457,746 653,905,310

═══════ ═══════ ═══════ ═══════ ═══════ ═══════

9,585,040 50,260,944 5,814,877 81,395 - 65,742,256

264,677,944 65,968,349 22,822,940 2,607,290 58,782 356,135,305

250,751,836 - - - - 250,751,836

1,260,359 65,968,349 22,822,940 2,607,290 58,782 92,717,720

12,665,749 - - - - 12,665,749

- 818,920 603,830 - - 1,422,750

- 34,384,261 20,862,531 44,601,557 11,408,180 111,256,529

- 76,849 220,858 1,009,264 815,794 2,122,765

─────── ─────── ─────── ─────── ─────── ───────

274,262,984 151,509,323 50,325,036 48,299,506 12,282,756 536,679,605

═══════ ═══════ ═══════ ═══════ ═══════ ═══════

SAR '000

Lease Liabilities

Less than

3 months

3 to 12

months

2020

1 to 5

years

Over

5 years Total

Total undiscounted financial

liabilities

On demandFinancial liabilities

SAR '000

Due to banks and other financial

institutions

Customers' deposits


- Time

- Others


Derivative financial instruments

(gross contractual amounts payable)

Financial liabilities On demand

Less than

3 months

3 to 12

months

2019

1 to 5

years

Over

5 years Total

Analysis of undiscounted financial liabilities by remaining contractual maturities (continued)


Derivative financial instruments

(gross contractual amounts payable)

Total undiscounted financial

liabilities

The contractual maturity structure of the credit-related and commitments and contingencies are shown under note (20.2(a)).

Due to banks and other financial

institutions

Customers' deposits


- Time

- Others

Lease Liabilities

___________________________________________________________________________________________________________

86






(35.2) Maturity analysis of assets and liabilities

2020

37,226,309 12,049,319 7,548,049 56,823,677

7,858,753 139,854 5,638,215 13,636,822

14,783,918 119,304,728 10,764,049 144,852,695

825,288 133,698 7,997,604 8,956,590

3,873,150 54,700,717 2,766,445 61,340,312

10,085,480 64,470,313 - 74,555,793

2,888,187 343,819,951 - 346,708,138

1,990,394 171,811,783 - 173,802,177

261,409 132,432,286 - 132,693,695

- 22,332,205 - 22,332,205

636,384 17,243,677 - 17,880,061

117,710 7,780,386 - 7,898,096

- - 441,614 441,614

- - 5,842,454 5,842,454

33,501 122,611 1,369,174 1,525,286

- - 21,717,216 21,717,216

─────── ─────── ─────── ────────

Total assets 62,908,378 483,216,849 53,320,771 599,445,998

═══════ ═══════ ═══════ ════════

58,440,002 16,588,155 - 75,028,157

199,742,271 212,318,303 4,358,147 416,418,721

102,841,777 212,175,682 4,358,147 319,375,606

82,924,955 5,857 - 82,930,812

13,975,539 136,764 - 14,112,303

1,164,918 607,772 - 1,772,690

164,824 9,579,619 - 9,744,443

184,166 - 16,082,840 16,267,006

─────── ─────── ─────── ────────

259,696,181 239,093,849 20,440,987 519,231,017

─────── ─────── ─────── ────────

Below is an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled. See note (35.1)

above for the contractual undiscounted financial liabilities.


SAR '000

Less than

1 year

Over

1 year

No-fixed

maturity Total

Assets

- Held at amortized cost



- Held at FVIS


Investments, net

- Held at FVOCI

Property, equipment and software, net

Other assets

Liabilities


Customers' deposits

- Corporate

- International

- Others


Investments in associates, net


Other liabilities

Total liabilities


- Time

- Others



___________________________________________________________________________________________________________

87






(35.2) Maturity analysis of assets and liabilities (continued)

2019

25,774,652 9,896,301 9,711,256 45,382,209

10,288,342 405,273 5,871,679 16,565,294

12,440,844 111,831,534 9,804,194 134,076,572

628,804 164,981 7,556,645 8,350,430

4,498,754 53,967,732 2,247,549 60,714,035

7,313,286 57,698,821 - 65,012,107

3,790,686 278,052,646 - 281,843,332

2,127,604 120,524,478 - 122,652,082

1,283,974 126,968,991 - 128,252,965

- 19,523,999 - 19,523,999

379,108 11,035,178 - 11,414,286

9,615 5,266,424 - 5,276,039

- - 438,483 438,483

- - 5,496,576 5,496,576

- 1,669,825 1,669,825

- - 16,070,416 16,070,416

─────── ─────── ─────── ────────

Total assets 52,304,139 405,452,178 49,062,429 506,818,746

═══════ ═══════ ═══════ ════════

59,457,373 2,728,671 - 62,186,044

179,515,000 171,039,114 2,835,201 353,389,315

76,961,990 170,902,946 2,835,201 250,700,137

90,019,354 4,075 - 90,023,429

12,533,656 132,093 - 12,665,749

81,262 934,839 - 1,016,101

85,209 5,996,371 - 6,081,580

196,490 - 14,606,367 14,802,857

─────── ─────── ─────── ────────

239,335,334 180,698,995 17,441,568 437,475,897

─────── ─────── ─────── ────────



Other liabilities

- Held at amortized cost



- Corporate

- International

Less than

1 year

Over

1 year

No-fixed

maturity Total


SAR '000

Assets



Investments, net

- Held as FVIS

- Held at FVOCI

- Others



Property, equipment and software, net

Other assets

Liabilities

Total liabilities


Customers' deposits


- Time

- Others

___________________________________________________________________________________________________________

88




36.

54,989,188 57,896 237,280 1,202,508 336,805 56,823,677

1,423,983 449,535 1,490,717 6,171,950 4,100,637 13,636,822

97,081,082 14,918,406 5,934,469 6,539,296 20,379,442 144,852,695

2,411,708 773,490 1,509,404 1,010,419 3,251,569 8,956,590

29,052,636 9,736,504 3,417,981 4,044,918 15,088,273 61,340,312

65,616,738 4,408,412 1,007,084 1,483,959 2,039,600 74,555,793

303,304,668 13,082,874 - 27,137,576 3,183,020 346,708,138

173,802,177 - - - - 173,802,177

112,328,453 12,414,253 - 4,767,969 3,183,020 132,693,695

- - - 22,332,205 - 22,332,205

17,174,038 668,621 - 37,402 - 17,880,061

3,726,094 1,245,109 2,809,183 117,710 - 7,898,096

439,440 - - - 2,174 441,614

──────── ──────── ─────── ─────── ─────── ───────

Total 460,964,455 29,753,820 10,471,649 41,169,040 28,002,078 570,361,042

════════ ════════ ═══════ ═══════ ═══════ ═══════

26,125,269 20,096,737 18,378,827 4,749,002 5,678,322 75,028,157

385,958,795 516,800 31,328 29,802,189 109,609 416,418,721

304,228,692 505,720 4,467 14,527,235 109,492 319,375,606

68,507,553 - 26,861 14,396,398 - 82,930,812

13,222,550 11,080 - 878,556 117 14,112,303

- - - 1,772,690 - 1,772,690

478,806 84,996 9,015,817 164,824 - 9,744,443

──────── ──────── ─────── ─────── ─────── ───────

Total 412,562,870 20,698,533 27,425,972 36,488,705 5,787,931 502,964,011

════════ ════════ ═══════ ═══════ ═══════ ═══════

38,227,304 3,380,614 921,755 4,530,258 5,329,560 52,389,491

5,779,321 1,013,247 173,559 535,918 1,926,745 9,428,790

21,367,435 1,401,726 699,710 3,803,814 3,389,415 30,662,100

1,524,096 147,028 48,486 190,526 13,400 1,923,536

9,556,452 818,613 - - - 10,375,065

════════ ════════ ═══════ ═══════ ═══════ ═══════

24,772,168 2,286,808 645,624 2,575,636 2,775,867 33,056,103

7,601,945 4,887,446 12,243,417 155,779 857,453 25,746,040

GEOGRAPHICAL CONCENTRATION OF ASSETS, LIABILITIES, COMMITMENTS AND CONTINGENCIES AND CREDIT EXPOSURE

(36.1) The distribution by geographical region for major categories of assets, liabilities and commitments and contingencies and credit exposure at

year end is as follows:

SAR '000

2020

The

Kingdom of

Saudi Arabia

GCC and

Middle East Europe Turkey

Other

countries Total

Assets



Investments, net

- Held at FVIS

- Corporate

- International

- Others



- Held at FVOCI

- Held at amortised cost



Liabilities

- Time

- Others



Customers' deposits


Derivatives


Commitments and contingencies (note 20.2)

- Letters of credit

- Guarantees

- Acceptances

- Irrevocable commitments to extend credit

Credit exposure (credit equivalent) (note 31.2):


________________________________________________________________________________________________________

89




36.

43,647,371 36,083 267,626 1,090,489 340,640 45,382,209

4,070,582 2,542,580 1,185,194 6,321,940 2,444,998 16,565,294

88,782,759 16,796,435 1,642,607 3,747,047 23,107,724 134,076,572

2,516,396 332,432 935,900 793,785 3,771,917 8,350,430

31,598,098 9,969,194 296,632 2,953,262 15,896,849 60,714,035

54,668,265 6,494,809 410,075 - 3,438,958 65,012,107

242,758,524 9,023,646 - 24,444,074 5,617,088 281,843,332

122,652,082 - - - - 122,652,082

109,816,352 8,349,663 - 4,749,730 5,337,220 128,252,965

- - - 19,523,999 - 19,523,999

10,290,090 673,983 - 170,345 279,868 11,414,286

2,864,310 627,342 1,689,221 9,615 85,551 5,276,039

436,309 - - - 2,174 438,483

──────── ──────── ─────── ─────── ─────── ───────

Total 382,559,855 29,026,086 4,784,648 35,613,165 31,598,175 483,581,929

════════ ════════ ═══════ ═══════ ═══════ ═══════

3,330,489 20,218,754 33,376,423 1,441,901 3,818,477 62,186,044

326,578,977 1,161,612 26,611 25,607,849 14,266 353,389,315

240,281,176 954,051 - 9,450,761 14,149 250,700,137

74,104,085 207,561 26,611 15,685,172 - 90,023,429

12,193,716 - - 471,916 117 12,665,749

- - - 1,016,101 - 1,016,101

864,625 75,708 5,054,058 85,208 1,981 6,081,580

──────── ──────── ─────── ─────── ─────── ───────

Total 330,774,091 21,456,074 38,457,092 28,151,059 3,834,724 422,673,040

════════ ════════ ═══════ ═══════ ═══════ ═══════

37,326,201 3,344,580 1,090,630 4,612,437 7,461,741 53,835,589

5,627,802 592,893 49,455 462,446 2,243,192 8,975,788

22,168,380 1,784,632 1,041,175 3,958,491 4,755,634 33,708,312

1,028,000 - - 191,500 462,915 1,682,415

8,502,019 967,055 - - - 9,469,074

════════ ════════ ═══════ ═══════ ═══════ ═══════

24,118,686 1,886,729 698,480 2,919,577 4,579,380 34,202,852

6,243,698 2,216,960 7,460,049 7,461 - 15,928,168

- Irrevocable commitments to extend credit

Credit exposure (credit equivalent) (note 31.2):


Derivatives

Liabilities


Customers' deposits


- Time

- Others



Commitments and contingencies (note 20.2)

- Letters of credit

- Guarantees

- Acceptances

- International

- Others





Investments, net

- Held at FVIS

- Held at FVOCI

- Held at amortised cost



- Corporate

GEOGRAPHICAL CONCENTRATION OF ASSETS, LIABILITIES, COMMITMENTS AND CONTINGENCIES AND CREDIT EXPOSURE

(continued)

(36.1) The distribution by geographical region for major categories of assets, liabilities and commitments and contingencies and credit exposure at

year end is as follows (continued):

SAR '000

2019

The

Kingdom of

Saudi Arabia

GCC and

Middle East Europe Turkey

Other

countries Total

The credit equivalent of commitments and contingencies and derivatives is calculated according to SAMA’s prescribed methodology.

Assets

________________________________________________________________________________________________________

90





36.

2020

The

Kingdom of

Saudi Arabia Turkey Total

4,791,104 1,337,331 6,128,435

(3,580,803) (954,880) (4,535,683) ─────── ────── ──────

Net 1,210,301 382,451 1,592,752 ═══════ ══════ ══════

2019

3,650,927 1,678,469 5,329,396

(3,154,271) (910,532) (4,064,803) ─────── ────── ──────

Net 496,656 767,937 1,264,593 ═══════ ══════ ══════

ECL allowances (stage 3)

GEOGRAPHICAL CONCENTRATION OF ASSETS, LIABILITIES, COMMITMENTS AND CONTINGENCIES

AND CREDIT EXPOSURE (continued)

(36.2) The distribution by geographical concentration of non-performing financing and advances and corresponding

ECL allowances are as follows:

SAR '000

Non performing financing and advances

ECL allowances (stage 3)

Non performing financing and advances

________________________________________________________________________________________________________

91




37. DETERMINATION OF FAIR VALUE AND FAIR VALUE HIERARCHY

Fair value information of the Group's financial instruments is analysed below:

a. Fair value information for financial instruments at fair value

Level 1 Level 2 Level 3 Total

Financial assets

Derivative financial instruments - 7,898,096 - 7,898,096

Financial assets held at FVIS 1,804,947 4,983,767 2,167,876 8,956,590

Financial assets held at FVOCI 41,161,033 20,028,175 151,104 61,340,312

Investments held at amortized cost, net

- fair value hedged (note 6.3 a) 4,975,557 - 4,975,557

─────── ─────── ─────── ───────

Total 42,965,980 37,885,595 2,318,980 83,170,555

═══════ ═══════ ═══════ ═══════



─────── ─────── ─────── ───────

Total - 9,744,443 - 9,744,443

═══════ ═══════ ═══════ ═══════

Level 1 Level 2 Level 3 Total

Financial assets


Financial assets held as FVIS 1,349,339 5,246,776 1,754,315 8,350,430

Financial assets held at FVOCI 40,165,948 20,390,941 157,146 60,714,035

Investments held at amortized cost, net

- fair value hedged (note 6.3 a) - 5,077,768 - 5,077,768

─────── ─────── ─────── ───────

Total 41,515,287 35,991,524 1,911,461 79,418,272

═══════ ═══════ ═══════ ═══════



─────── ─────── ─────── ───────

Total - 6,081,580 - 6,081,580

═══════ ═══════ ═══════ ═══════

Level 3: Valuation techniques for which any significant input is not based on observable market data.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market

participants at the measurement date. The fair value measurement is based on the presumption that the transaction takes place either:

- In the accessible principal market for the asset or liability, or

- In the absence of a principal market, in the most advantageous accessible market for the asset or liability.

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments:

Level 1: Quoted prices in active markets for the same instrument;

Level 2: Quoted prices in active markets for similar assets and liabilities or valuation techniques for which all significant inputs are

based on observable market data; and

The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:

SAR '000

2020

SAR '000

2019

________________________________________________________________________________________________________

92





37. DETERMINATION OF FAIR VALUE AND FAIR VALUE HIERARCHY (continued)

b. Fair value information for financial instruments not measured at fair value

c. Valuation technique and significant unobservable inputs for financial instruments at fair value

d. Transfer between Level 1 and Level 2

e. Reconciliation of Level 3 fair values

Movement of level 3 is as follows:

2020 2019

SAR ’000 SAR ’000

Balance at beginning of the year 1,911,461 920,695

52,337 237,076

Purchases 1,004,951 897,208

(Sales) and other adjustments (649,769) (143,518)

─────── ─────── Balance at end of the year 2,318,980 1,911,461

─────── ───────

f. Sensitivity analysis for significant unobservable inputs in valuation of financial instruments at fair value

The fair value of financing and advances, net amounts to SAR 356,408 million (2019: SAR 290,470 million).

The Group uses various valuation techniques for determination of fair values for financial instruments classified under levels 2

and 3 of the fair value hierarchy. These techniques and the significant unobservable inputs used therein are analysed below.

The Group utilises fund managers reports (and appropriate discounts or haircuts where required) for the determination of fair

values of private equity funds and hedge funds. The fund manager deploys various techniques (such as discounted cashflow

models and multiples method) for the valuation of underlying financial instruments classified under levels 2 and 3 of the

respective fund's fair value hierarchy. Significant unobservable inputs embedded in the models used by the fund manager

include risk adjusted discount rates, marketability and liquidity discounts and control premiums.

The fair values of due from banks and other financial institutions, due to banks and other financial institutions, customers'

deposits and debt securities issued at 31 December 2020, 31 December 2019 are not materially different from their respective

carrying values.

For the valuation of unquoted debt securities and derivative financial instruments, the Group obtains fair value estimates from

reputable third party valuers, who use techniques such as discounted cash flows, option pricing models and other

sophisticated models.

There were no transfers between level 1 and level 2 during 31 December 2020 (31 December 2019: Nil).

The following table shows a reconciliation from the opening balance to the closing balance for Level 3 fair values.

Total gains (realised and unrealised)

in consolidated statement of income

Significant unobservable inputs were applied in the valuation of hedge funds and private equities for the year ended 31

December 2020 and the impact of the sensitivity is not material.

_________________________________________________________________________________________________________

93





38. RELATED PARTY TRANSACTIONS

2020 2019SAR ’000 SAR ’000

1,011,859 963,372

136,134 237,188

7,741 12,527

153,342 55,880

42,274 36,115

Balances of companies and institutions owned by 5% or more by related parties:

13,611,530 6,634,387

9,374,747 7,339,076

2,571,151 1,433,776

4,345,473 1,083,142

36,401,171 26,357,463

1,320,085 718,580


In the ordinary course of its activities, the Group transacts business with related parties. The related party transactions are

governed by the limits set by the Banking Control Law and the regulations issued by SAMA and approved by the board of

directors and management. Related party balances include the balances resulting from transactions with Governmental

shareholders.

Major shareholders represent shareholdings of more than 5% of the Bank’s issued share capital. Related parties are the

persons or close members of those persons' families and their affiliated entities where they have control, joint control or

significant influence over these entities.

(38.1) The balances as at 31 December included in the consolidated financial statements are as follows:

Bank's Board of Directors and Senior Executives:


Customers' deposits

Investments

Investments (Assets under Management)

Other liabilities - end of service benefits


Customers' deposits


Major shareholders:

Customers' deposits

Group's investment fund

Investment

_________________________________________________________________________________________________________

94





38. RELATED PARTY TRANSACTIONS (continued)

2020 2019

SAR ’000 SAR ’000

1,004,451 378,808

269,057 244,832

469,592 368,449

2020 2019

SAR ’000 SAR ’000

9,975 10,710

80,475 78,197

4,108 1,867

39. GROUP'S STAFF COMPENSATION

Categories of employees

Number of

employees

Fixed

compensation

(on accrual

basis)

Variable

compensation

(on cash basis)

Number of

employees

Fixed

compensation

(on accrual

basis)

Variable

compensation

(on cash basis)

SAR '000 SAR '000 SAR '000 SAR '000

19 30,166 95,239 20 31,247 124,582

587 276,576 178,762 588 271,224 180,111

582 212,438 89,333 596 208,358 86,878

6,191 1,163,511 249,049 6,295 1,162,961 230,006

- 413,085 - - 395,853 -

5,955 608,284 160,601 5,384 603,057 147,281

─────── ─────── ─────── ─────── ─────── ───────Group total 13,334 2,704,060 772,984 12,883 2,672,700 768,858

═══════ ═══════ ═══════ ═══════ ═══════ ═══════

(38.2) Income and expenses pertaining to transactions with related parties included in the consolidated financial statements are as

follows:

Special commission income

Special commission expense

Fees and commission income and expense, net

(38.3) The total amount of compensation paid to the Group's Board of Directors and key management personnel during the

year is as follows:

Other employee related benefits

Directors' remuneration

Short-term employee benefits

End of service benefits

The Bank's Board of Directors includes the Board and Board related committees (Executive Committee, Risk Management

Committee, Compensation and Nomination Committee and Audit Committee). For Group's senior executives compensation (see

note 39).

The following table summarizes the Group’s employee categories defined in accordance with SAMA’s rules on compensation

practices and includes the total amounts of fixed and variable compensation paid to employees during the years ended 31 December

2020 and 2019, and the forms of such payments:

Other employees

Employees engaged in control

functions

Senior Executives

Employees engaged in risk

taking activities

2020 2019

Subsidiaries

All forms of payment for fixed and variable compensation are either in cash or shares in NCB.

The Bank's Senior Executives are those persons, including an executive director, having authority and responsibility for planning,

directing and controlling the activities of the Bank, directly or indirectly.

Employees engaged in control functions include employees in Risk Management, Internal Audit, Compliance, Finance and Legal

divisions.

Employees engaged in risk taking activities comprise those officers of the business sectors of Consumer Banking, Corporate and

Treasury, who are the key drivers in undertaking business transactions, and managing related business risks.

The Group's variable compensation and other employees related benefits recognized as staff expenses in the consolidated statement

of income for 2020 is SAR 846 million (2019: SAR 877 million). ___________________________________________________________________________________________________________

95





40. CAPITAL ADEQUACY

2020 2019

SAR ’000 SAR ’000

Credit risk 377,284,842 336,884,053

Operational risk 37,739,086 36,073,511

Market risk 10,415,366 17,039,531

──────── ────────

Total Pillar-1 - risk weighted assets 425,439,294 389,997,095

════════ ════════

Core capital (Tier 1) 81,916,210 69,723,480

Supplementary capital (Tier 2) 4,548,388 3,014,128

──────── ────────

Core and supplementary capital (Tier 1 and Tier 2) 86,464,598 72,737,608

════════ ════════

Capital Adequacy Ratio (Pillar 1):-

Core capital (Tier 1 ratio) 19.3% 17.9%

Core and supplementary capital (Tier 1 and Tier 2 ratios) 20.3% 18.7%

Capital adequacy ratio

The Group's objectives when managing capital are to comply with the capital requirements set by SAMA to safeguard the Group's

ability to continue as a going concern and to maintain a strong capital base.

The Group monitors the adequacy of its capital using the ratios and weights established by SAMA. These ratios measure capital

adequacy by comparing the Group’s eligible capital with its consolidated statement of financial position assets, commitments and

contingencies and notional amount of derivatives at a weighted amount to reflect their relative credit risk, market risk and

operational risk. SAMA requires banks to hold the minimum level of the regulatory capital and maintain a ratio of total eligible

capital to the risk-weighted asset at or above the agreed minimum of 8%. Regulatory Capital is computed for Credit, Market and

Operational risks which comprise the Pillar 1 minimum capital requirements.

The following table summarizes the Bank's Pillar-1 Risk Weighted Assets, Tier 1 and Tier 2 capital and capital adequacy ratios.

Risk Weighted Assets

Tier 1 capital of the Group comprises share capital, statutory reserve, other reserves, proposed dividend, retained earnings, tier 1

eligible debt securities, foreign currency translation reserve and non-controlling interests less treasury shares, goodwill, intangible

assets and other prescribed deductions. Tier 2 capital comprises of eligible debt securities issued and prescribed amounts of eligible

portfolio (collective) provisions less prescribed deductions.

The Group uses the Standardized approach of Basel III to calculate the Risk-Weighted Assets and required regulatory capital for

Pillar -1 (including Credit Risk, Market Risk and Operational Risk). The Group's Risk Management is responsible for ensuring that

minimum required Regulatory Capital calculated is compliant with Basel III requirements. Quarterly prudential returns are

submitted to SAMA showing the Capital Adequacy Ratio.

SAMA has issued the framework and guidance regarding implementation of the capital reforms under Basel III - which are effective

from 1 January 2013. Accordingly, the Group’s consolidated Risk Weighted Assets (RWA), total eligible capital and related ratios

on a consolidated group basis are calculated under the Basel III framework.

___________________________________________________________________________________________________________

96





41. GROUP’S INTEREST IN OTHER ENTITES

(41.1) Material partly-owned subsidiaries

(a) Significant restrictions

(b) Non-controlling interests in subsidiaries

2020 2019

SAR '000 SAR '000

22,332,206 19,523,998

18,164,092 12,993,859

38,055,036 29,790,253

Net assets 2,441,262 2,727,604

804,885 899,291

1,597,255 1,482,819

363,987 249,267

Total comprehensive income (loss) (286,354) 21,971

(94,410) 7,244

632,051 4,515,121

(2,328,199) (2,044,672)

1,005,859 (3,001,567)─────── ───────

Net (decrease) in cash and cash equivalents (690,289) (531,118)═══════ ═══════

Other assets

The Group does not have significant restrictions on its ability to access or use its assets and settle its liabilities other than

those resulting from the supervisory frameworks within which TFKB operate. The supervisory frameworks require TFKB

to keep certain levels of regulatory capital and liquid assets, limits its exposure to other parts of the Group and comply with

other ratios. The carrying amounts of TFKB's assets and liabilities are SِAR 40,496 million and SAR 38,055 million,

respectively (2019: SR 32,518 million and SR 29,790 million, respectively).

The following table summarises the information relating to the Group's subsidiary (TFKB) that has material non-controlling

interests (NCI).

Summarised statement of financial position


Liabilities

Carrying amount of NCI

Summarised statement of income


Net income

Total comprehensive income (loss) attributable to NCI

Summarised cash flow statement

Net cash from operating activities

Net cash (used in) investing activities

Net cash from financing activities

__________________________________________________________________________________________________________

97





41. GROUP’S INTEREST IN OTHER ENTITES (continued)

(41.2) Involvement with unconsolidated structured entities

Type of structured entity Nature and purpose Interest held by the Group

Hedge funds

Private equity funds

SAR '000 SAR '000

Hedge funds 323,831 302,066

Private equity funds 260,680 217,635

─────── ───────

Total 584,511 519,701

═══════ ═══════

42. COMPARATIVE FIGURES

Except as disclosed in note 3.3, there have been no reclassifications which are material to the consolidated financial

statements.

The table below describes the types of structured entities that the Group does not consolidate but in which it holds an

interest.

The Group considers itself a sponsor of a structured entity when it facilitates the establishment of the structured entity. At

31 December 2020, the Group holds an interest in all structured entities it has sponsored.

To generate returns from trading in the units/shares of

the fund and/or via distributions made by the fund.

These funds are financed through the issue of

units/shares to investors.

• Investments in units issued by

the funds.

To generate returns from long-term capital appreciation

in the net worth of the fund, realised via periodic

distributions and eventual exit at the end of the life of the

fund.

These funds are financed through the issue of units/

shares to investors.

• Investments in units/ shares

issued by the funds.

The table below sets out an analysis of the carrying amounts of interest held by the Group in unconsolidated structured

entities. The maximum exposure to loss is the carrying amount of the assets held.

2020 2019

__________________________________________________________________________________________________________

98





43.

The accounting impact of the above changes in terms of the credit facilities has been assessed and were treated as per the

requirements of IFRS 9 as modification in terms of arrangement. This resulted in modification losses which have been presented as

part of net special commission income.

The Bank continues to monitor the lending portfolios closely and reassess the provisioning levels as the situation around COVID-19

evolves; however, the aggregate impact of various COVID-19 related adjustments contributed an additional ECL of SAR 884

million during the year 2020.

• Deferred payments program;

• Facility Guarantee program;

• Point of sale (“POS”) and e-commerce service fee support program.

As part of the deferred payments program launched by SAMA, the Bank was required to defer payments for a total of nine months

(original deferment for six months was followed on by a further extension of three months) on lending facilities to eligible MSMEs.

The payment reliefs were considered as short-term liquidity support to address the borrower’s potential cash flow issues. The Bank

effected the payment reliefs by deferring the instalments falling due within the period from 14 March 2020 to 14 September for a

period of six months and then further deferring the installments falling due within the period from 15 September 2020 to 14

December 2020 for a period of three months without increasing the facility tenure.

Further to the above, SAMA on 29 November 2020 extended the deferred payment program until 31 March 2021. The Bank has

effected the payment reliefs by deferring the instalments falling due within the period from 15 December 2020 to 31 March 2021

without increasing the facility tenure.

SAMA support programs and initiatives

Private Sector Financing Support Program (“PSFSP”)

In response to COVID-19, SAMA launched the Private Sector Financing Support Program (“PSFSP”) in March 2020 to provide the

necessary support to the Micro Small and Medium Enterprises (MSME) as per the definition issued by SAMA via Circular No.

381000064902 dated 16 Jumada II 1438H. The PSFSP encompasses mainly the following programs:

IMPACT OF COVID-19 ON EXPECTED CREDIT LOSSES (“ECL”) AND SAMA PROGRAMS

The Coronavirus (“COVID-19”) pandemic continues to disrupt global markets as many geographies are beginning to experience a

“second wave” of infections despite having previously controlled the outbreak through aggressive precautionary measures such as

imposing restrictions on travel, lockdowns and strict social distancing rules. The Government of Kingdom of Saudi Arabia (“the

Government”) however has managed to successfully control the outbreak to date, owing primarily to the effective measures taken,

following which the Government has now ended the lockdowns and has begun taking phased measures to normalize international

travel and resume Umrah pilgrimages.

The Bank continues to be cognisant of both the micro and macroeconomic challenges that COVID-19 has posed, the teething effects

of which may be felt for some time, and is closely monitoring its exposures at a granular level. This has entailed reviewing specific

economic sectors, regions, counterparties and collateral protection and taking appropriate customer credit rating actions and

initiating restructuring of loans, where required.

The Bank has also revised certain inputs and assumptions used for the determination of expected credit losses (“ECL”). The

revisions mainly revolved around:

- adjusting macroeconomic factors/inputs used by the Bank in its ECL model including observed default rates;

- revisions to the scenario probabilities, and

- refinement of staging criteria in light of the SAMA support measures and to effectively identify exposures where lifetime ECL

losses may have been triggered despite repayment holidays.

The Bank’s ECL model continues to be sensitive to the above assumptions and are continually reassessed as part of its business as

usual model refinement exercise. As with any forecasts, the projections and likelihoods of occurrence are underpinned by significant

judgement and uncertainty and therefore, the actual outcomes may be different to those projected.

As a result of the above program and related extensions, the Bank has deferred the payments of SAR 9 billion on MSMEs portfolio

and accordingly, has recognised total modification losses of SAR 461 million during the year. The total exposures against these

customers amounted to SAR 22 billion as at the year end.

The Bank generally considered the deferral of payments in hardship arrangements as an indication of a SICR but the deferral of

payments under the current COVID-19 support packages have not, in isolation, been treated as an indication of SICR.

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43.

SAMA liquidity support for the Saudi banking sector amounting to SAR 50 billion

IMPACT OF COVID-19 ON EXPECTED CREDIT LOSSES (“ECL”) AND SAMA PROGRAMS (continued)

SAMA support programs and initiatives (continued)

Health care and Private sector support:

In recognition of the significant efforts that our healthcare workers are putting in to safeguard the health of our citizens and residents

in response to the COVID-19 outbreak, the Bank has decided to voluntarily postpone payments for all public and private health care

workers who have credit facilities with the Bank for three months. This resulted in the Bank recognising a day 1 modification loss of

SR 166 million during the year ended 31 December 2020, which was presented as part of net special commission income. SAR 38

million has been recognized in the statement of income on unwinding the discount on financing during the year.

Moreover, due to this programme the Bank has booked SAR 195 million incremental total ECL for the MSME portfolio having total

exposure of SAR 22 billion.

If the balance of the customers under COVID-19 support packages in stage 1 move to stage 2, an additional ECL provisions would

be provided during 2021 based on the credit facility level assessment and the ability to repay amounts due after the deferral period

ends.

In order to compensate the related cost that the Bank is expected to incur under the SAMA and other public authorities program, the

Bank has received in aggregate SAR 9.5 billion of profit free deposit in number of tranches from SAMA during the year ended 31

December 2020, with varying maturities. Management had determined based on the communication from SAMA, that the profit free

deposits primarily relates to compensation for the modification loss incurred on the deferral of payments. The benefit of the

subsidised funding rate has been accounted for on a systematic basis, in accordance with government grant accounting requirements.

By end of December 2020, total income of SAR 495 million has been recognised in the statement of income. The management has

exercised certain judgements in the recognition and measurement of this grant income. During the year ended 31 December 2020,

SAR 108 million has been charged to the statement of income relating to unwinding of the day 1 income.

Government grant in respect to the SAMA support programs

Subsequently on 30 December 2020, the Bank received extension of profit free deposit whereby maturities of significant portion of

the deposits were extended by further twenty one months. The extension resulted in a modification gain of SAR 286 million which

has been accounted for in accordance with government grant accounting requirements, taking into consideration the related costs

including fee waivers under the aforementioned SAMA support programs (namely PSFSP and liquidity support for the Saudi

banking sector) and was recorded in statement of income.

Moreover, in respect to the liquidity support, the Bank received SR 7.1 billion profit free deposit with one year maturity.

Management has determined that this government grant primarily relates to liquidity and fees waiver support. The benefit of the

subsidised fundingratehas been accounted for on a systematic basis, in accordance with government grant accounting requirements.

This resulted in a total income of SR 98 million, all of which has been recognised in the statement of income as at 31 December

2020.

Private Sector Financing Support Program (“PSFSP”) (continued)

In line with its monetary and financial stability mandate, SAMA injected an amount of fifty billion riyals in order to:

• enhance the liquidity in the banking sector and enable it to continue its role in providing credit facilities to private sector

companies;

• restructure current credit facilities without any additional fees;

• support plans to maintain employment levels in the private sector; and

• provide relief for a number of banking fees that have been waived for customers.

As at 31 December 2020, the Bank has participated in SAMA’s facility guarantee programs and the accounting impact for the

period is immaterial.

Furthermore, during the year ended 31 December 2020, the Bank has recognised reimbursement from SAMA for the forgone POS

and e-commerce service fee amounting to SR 269 million.

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44. INVESTMENT SERVICES

45. PROSPECTIVE CHANGES IN ACCOUNTING POLICIES

Effective for

annual periods

beginning on or

after

Standard, amendment

or interpretationSummary of requirements

1-Jun-20

Amendments to IFRS 16:

Leases for COVID-19 rent

related concessions

The amendments provide relief to lessees from applying IFRS 16

guidance on lease modification accounting for rent concessions arising

as a direct consequence of the Covid-19 pandemic. As a practical

expedient, a lessee may elect not to assess whether a Covid-19 related

rent concession from a lessor is a lease modification. A lessee that

makes this election accounts for any change in lease payments resulting

from the Covid-19 related rent concession the same way it would

account for the change under IFRS 16, if the change were not a lease

modification.

1-Jan-23

Amendments to IAS 1 –

“Classification of

Liabilities as Current or

Non-current”

In January 2020, the IASB issued amendments to paragraphs 69 to 76

of IAS 1 to specify the requirements for classifying liabilities as current

or non-current. The amendments clarify:

• What is meant by a right to defer settlement

• That a right to defer must exist at the end of the reporting period

• That classification is unaffected by the likelihood that an entity will

exercise its deferral right

• That only if an embedded derivative in a convertible liability is itself

an equity instrument would the terms of a liability not impact its

classification

The amendment is not expected to have an impact on the consolidated

financial statements of the Group.

1-Jan-22

Reference to the

Conceptual Framework –

Amendments to IFRS 3

In May 2020, the IASB issued Amendments to IFRS 3 Business

Combinations - Reference to the Conceptual Framework. The

amendments are intended to replace a reference to a previous version of

the IASB’s Conceptual Framework (the 1989 Framework) with a

reference to the current version issued in March 2018 (the Conceptual

Framework) without significantly changing its requirements. The

amendments add an exception to the recognition principle of IFRS 3 to

avoid the issue of potential ‘day 2’ gains or losses arising for liabilities

and contingent liabilities that would be within the scope of IAS 37

Provisions, Contingent Liabilities and Contingent Assets or IFRIC 21

Levies, if incurred separately.

The following is a brief on the other new IFRS and amendments to IFRS, effective for annual periods beginning on or

after 1 January 2020:

The Bank offers investment management services to its customers through its subsidiary, which include management of

certain investment funds in consultation with professional investment advisors, with assets totaling of SAR 185,589

million (2019: SAR 156,009 million).

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101

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